5 Stocks Making Cash

Had Jerry Maguire been an investor instead of a fictional sports agent, he might have become famous for yelling, "Show me the cash flow!"

Earnings come and go, and the green-eyeshade types can legally manipulate it to mask a company's true operations. Yet its ability to generate cash -- what comes in the register and goes out the door -- remains the preeminent indicator of company's worth. In short, cash is king.

Below, we'll look at companies that have proven themselves prodigious generators of free cash flow (FCF) -- the amount of money a company has left over that it could potentially pay to its investors. We'll find companies that have generated compounded free cash flow growth rates exceeding 25% annually over the past five years, then pair them with the opinions of the more than 145,000 members of the Motley Fool CAPS investor intelligence community, to see which ones might have the best chance of outperforming the market.

Source: Capital IQ, a division of Standard & Poor's; Motley Fool CAPS.
CAGR = compounded annual growth rate.

Generating copious amounts of cash doesn't make a company an automatic buy. But having looked at Enron's cash flows instead of its earnings would have saved many investors a lot of grief. Warren Buffett understands that the value of a company today is calculated by its discounted future cash flows, so use this list as a jumping-off point to dig deeper into the piles of cash.

Ka-ching!
This holiday shopping season might reveal just how pitch dark consumers' hearts are and not how black this coming Friday will be. Wal-Mart, the King of All Retail, indicates that pricing pressures could even impact its results this Christmas. If the leader in strong-arm supplier tactics is worried, I would imagine similar retailers like Target (NYSE:TGT) and Costco (NASDAQ:COST) are concerned as well.

Yet I'm not particularly concerned about Wal-Mart's ability to survive any extended flintiness by consumers. There's hardly a week that goes by that it doesn't do something to help save us from high costs, and that resonates well with shoppers. But that's only one aspect of its overall grand scheme for world domination. The international segment remains its fastest growing component where sales increased 12% and operating profits grew 9% from the year-ago period on a constant currency basis.

Unfortunately, investors have a difficult time separating their personal biases from their investing acumen, and so they either don't see the potential for further growth or they're just purposely ignoring it. While some will rail over alleged mistreatment of employees, or expect it to singlehandedly solve otherwise intractable issues, it's easier to understand the arguments of those like highly rated CAPS All-Star BrodieMan720, who at least attacks Wal-Mart's inability to be as flexible and growth-oriented as it used to be.

Truthfully, I think the company's beginning to be too big. Quick ratio is a low, and overall it just doesn't seem like the store it used to be. Kudos for renovating a lot of stores to make them more current, but I think dumping money into a face lift isn't going to help. Holiday season is here, and I'd like to see some major sales. Like others have said, it's not the same Wal-Mart as the one of old.

Although as a shareholder I don't agree with that point of view, at least sense can be made of the argument that expecting Wal-Mart to be the same store it once was is unrealistic. However, I believe those overseas opportunities will continue to support rosier growth scenarios.

Wal-Mart remains a lightning rod for polemics, but reasoned debate is far more preferable. Why not head over to Wal-Mart's CAPS page and ring up your own thoughtful opinion on whether investors should check this stock out? Or let us know in the comments box below.

Follow the money
While these stocks have left a trail of dollars, it pays to start your own research on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Why not head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think will continue to be rolling in the dough.