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John Reese is founder and CEO of and Validea Capital Management, and portfolio manager for the Omega American & International Consensus funds. Globe Investor has a joint venture with, a premium Canadian stock screen service.

Cash: It's the lifeblood of any business. That may seem obvious, but it's something that can easily be forgotten - just look at what happened to overleveraged, overextended companies during the financial crisis in 2008.

Businesses that had weak cash flows or negative cash flows (that is, they were burning through cash faster than they were making it) were left scrambling to pay bills and stay afloat.

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Those that were generating a lot of cash, on the other hand, had much-needed flexibility. Not only were they able to weather the storm, many were able to use their cash to make some great deals amid the crisis. (Just think of Warren Buffett's deal with Goldman Sachs.)

Companies that have lots of cash freed up can also be attractive targets for investors. In fact, some of the world's most successful investors focus on free cash flow - which, generally, is the amount of cash a firm generates once you subtract the amount it takes to run its business, including capital expenditures.

Free cash flow, some say, can be a more reliable financial indicator than profit, which can be more easily manipulated through accounting gimmickry.

One investment guru who keys on free cash flow is Bruce Berkowitz, one of Morningstar's Fund Managers of the Decade. "Free cash flow is the well from which all returns are drawn, whether they are dividends, stock buybacks, or investments capable of enhancing future returns," Mr. Berkowitz wrote in an introductory chapter to an updated version of Security Analysis, the classic text written by Benjamin Graham and David Dodd.

Mr. Berkowitz has said he keys on companies that have free cash flow yields (that's free cash per share divided by share price) of at least 10 per cent. With that free-cash focus at the heart of his strategy, his Fairholme fund has returned more than 10 per cent a year over the past decade, while the S&P 500 has returned about 2.5 per cent annually.

Another of Morningstar's Fund Managers of the Decade, David Herro, also keys on free cash flow. He recently told WealthTrack that he compares the amount of free cash a business generates to its enterprise value. It seems to have worked for him: Mr. Herro's Oakmark International Fund has more than doubled the results of the MSCI EAFE international index over the past 15 years, returning about 9 per cent annually.

Several of the Guru Strategies I run on my Validea Canada site (each of which is based on the approach of a different investing great) use free cash flow as one of their criteria.

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Given the uncertainty surrounding the global economy - and given the flexibility that strong free cash flows allow during a variety of market climates - I thought it would be interesting to look at some companies that currently have high free cash flow yields.

Here are two that make the grade from the U.S. market, and two that pass muster from the Canadian market.

AmSurg Corp. : This Nashville-based company operates a network of more than 200 ambulatory surgery centres across the United States in partnership with physicians. AmSurg is a free-cash-producing machine, sporting a free cash flow yield of 26.3 per cent.

Its ability to turn free cash into profits is part of why the model I base on the writings of hedge fund guru Joel Greenblatt is so high on the stock. It likes AmSurg's 22.1-per-cent earnings yield and 107.1-per-cent return on capital, and, all in all, sees AmSurg as the second most attractive stock in the U.S. market right now.

Global Payments Inc. : Based in Atlanta, Global Payments provides electronic processing services for payment card, cheque and eCommerce transactions. The firm, which has a free cash flow yield of 20.9 per cent, serves more than a million merchants across the globe.

While other financial firms have had a wild ride over the past decade, Global Payments has been remarkably consistent, growing earnings per share every year. That's part of why it gets strong interest from my Warren Buffett-based model, which also likes the firm's 16.1-per-cent average return on equity and 9.8-per-cent average return on assets over the past decade.

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Transat A.T. Inc. : Transat is a Montreal-based international travel tour operator that, despite being a small-capitalization company, has raked in more than $3.5-billion in sales over the past year. The firm, which owns its own air carrier, offers trips to more than 60 countries across the globe.

The travel industry might seem an odd place to look for big cash generators, but Transat excels in that regard, with a free cash flow yield of about 27 per cent. It's my Greenblatt-based model's favourite Canada-traded stock right now.

Power Financial Corp. : This diversified financial company is active in Canada, the U.S. and Europe, with businesses that include life and health insurance providers, investment management and mutual fund management.

Montreal-based Power has a free cash flow yield of 27.0 per cent, and its cash flow is one reason it gets strong interest from my James O'Shaughnessy-based model. This approach looks for large firms with strong cash flows and high dividend yields, and Power's size, $9.22 in cash flow per share (nearly eight times the market mean) and impressive 4.8-per-cent yield make the grade.

Full disclosure: I'm long AmSurg and Global Payments.

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