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Number Cruncher

Cheap companies churning out the cash Add to ...



WHAT ARE WE LOOKING FOR? Cash is king and we want to know which companies are best at producing it, and more specifically which stocks of cash-generating firms are the best-priced. We have focused the search on companies listed on the Toronto Stock Exchange and set the bar at a market valuation of $300-million and above.

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MORE ABOUT TODAY'S SCREEN Some financial gurus argue that today's accounting rules allow for too much discretion on the part of a reporting company when it comes to declaring income. As a result, many professional money managers now rate free cash flow as a better indicator of a company's health than earnings, arguing that it's not susceptible to as many accounting adjustments as net income.

Free cash flow refers to cash from a company's operations, minus capital expenditures. And the free cash flow yield is an indicator of free cash flow return relative to the share price. It's calculated by dividing the trailing 12-month figure for free cash flow per share by the most recent share price. A bigger ratio implies a better deal because an investor wants the most cash flow at the lowest possible price.

WHAT DID WE FIND? Flint Energy Services Ltd., No. 1 on the list, pays no dividend and scaled back business significantly last year as the oil and gas industry paired back. But the Calgary-based company recently pointed to new projects for the year ahead.

Canwel Holdings Corp. No. 2 on the list, is a national distributor of building materials. Its sales suffered a double-digit decline last year as it felt the pinch of the recession. In February, the Vancouver-based company, converted into a corporation from an income trust.

George Weston Ltd., No. 3 on the list, controls grocery retailer Loblaw Cos. and other food producing businesses. It also recently reported falling revenue and profit, and said it is assessing "strategic options for the redeployment of the company's substantial cash."

The longer-term question for all the issuers on this list is how consistent these cash flow yields are over time and how well do these companies allocate that cash. Options for using it range from increasing dividend payouts and buying back shares to paying down debt and acquiring other companies.

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