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Five Cash Flow Kings For August 18

Posted: Aug 18, 2008 11:50 AM by Glenn Curtis

Tickers in this Article: CEPH, COO, LIZ, NEM, SLE

A company's net income and earnings per share can provide insight into its well being and progress over time. That's why these metrics get the headlines. However, there are times when a company's "bottom line" doesn't tell the whole story.

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The problem with looking solely at a company's earnings number is that sometimes earnings are by hurt one-time events or depreciation, which can muddy the waters. That's where cash flow comes into play. The cash flow statement simply tracks where the company's money goes and may provide a clearer picture of its health. (For related reading, check out Fundamental Analysis: The Cash Flow Statement and The Essentials Of Cash Flow.)

The Basics of Cash Flow
Cash flow statements are no-nonsense. They depict money outflows and inflows and may be a better measure in determining whether the company has the money to cover the important things like its interest payments on a loan or if it has extra money it can spend on a share repurchase program.

Its also important to note that there are times when a company might currently be losing money in terms of its net income, but generating positive cash flow. Under some conditions such a company may be a good investment candidate. If the earnings do turn positive, other investors may start to take notice and the stock could take off. With all of that in mind, here are some companies that, in their most recently completed fiscal year, have generated positive cash flow despite reporting negative net income:

Cash Flow Kings

Company	Market Cap	Cash Flow
Cephalon (Nasdaq:CEPH)	$5.3 billion	$450.4 million
Cooper Companies (NYSE:COO)	$1.6 billion	$125.9 million
Liz Claiborne (NYSE:LIZ)	$1.4 billion	$292.1 million
Newmont Mining (NYSE:NEM)	$19.5 billion	$1.3 billion
Sara Lee (NYSE:SLE)	$10.1 billion	$1.0 billion
Data as of market close August 14, 2008

Sara Lee the "Show Me" Stock
The Illinois-based company dates back to 1939, and over the years it has developed an excellent reputation and a terrific name thanks largely to some of its top brands, including Sara Lee, Jimmy Dean and Hillshire Farm. Unfortunately, Sara Lee's ride hasn't always been a smooth one. Earlier this year I penned an article, Sara Lee's Half Baked Q3, where I discussed its lackluster 2008 outlook. I also voiced concern that the benefits its been seeing from a strong euro might not always be there going forward.

In fiscal 2008, Sara Lee reported a loss, but on the positive side net cash from operating activities was approximately $600 million in fiscal 2008, compared to $492 million in fiscal 2007.

At present Sara Lee is expected to earn $1.06 per share in the current fiscal year and $1.20 per share next year. That's a pretty decent growth expectation and is somewhat attractive given that the stock currently trades under $15. (For further reading, check out Strategies For Quarterly Earnings Season.)

In short, I'm encouraged by Sara Lee's history, and I appreciate its well-known brands. However, I think that the company is now what I would refer to as a "show me" stock. Before hopping on board, investors should watch to make sure Sara Lee produces several quarters of upbeat news and shows them some results. In the interim, this is a stock stricktly for the radar screen.

Bottom Line
There is an old adage: "It takes money to make money." Cash flow is the metric that lets you see how a company spends its cash and where it is coming from. Sometimes a company looks sicklier than it actually is, and cash flow can help you discern if there is a turnaround opportunity in the works. Not all of the stocks in the table above are guaranteed to see gains in share price, but having examined their cash flow, it's likely that we could be looking back at them in a year from now and wondering how Wall Street misread the true health of their earning potential.

For related reading, check out Analyze Cash Flow The Easy Way.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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