An interesting article the other day on MarketWatch.com about cash-flow winners caught my eye. The author, Philip van Doorn, suggests heading into a riskier market environment, focus on companies that not only generate a lot of cash but can also grow their money.
The article suggests the aggressive monetary policies by the FED and the massive stimulus programs from Congress will lead to increased economic growth. With rising inflation, the FED will taper. The FED's action will then lead to an increase in volatility for stocks, and hence the emphasis on cash-flow winners.
Included below is Van Doorn's list of the top 10 S&P 500 companies with the highest free-cash-flow CAGR for three years and five years through 2020.
If you compare the two lists, seven stocks are common between the two. Although fundamental or quantitative screens have their advantages and limits, most names on the two FCF CAGR lists also have bullish technical trends, including most of the seven common stocks (i.e., AMZN, GOOGL, CVS, HD, INTC, ABBV, and UNH). Only two stocks (i.e., VZ and INTC) showed neutral technical conditions, at least from a near-to-intermediate-term basis.
Fundamental analysis evaluates securities by measuring their intrinsic value. Quantitative analysis provides insights into the valuation or historic performance of a security. Technical analysis offers clues to future price trends based on history, trading patterns, and technical indicators.
When the three analyses - fundamental, quantitative, and technical are aligned, this helps to improve the odds of a favorable trade or investment outcome.
Here are the top 10 S&P 500 companies with the highest free-cash-flow CAGR for the three years through 2020:
Here are the five-year CAGR winners: