In this article, we will take a look at the 12 stocks from companies generating high cash flow. To skip our introduction, you can go directly to 5 Stocks from Companies Generating High Cash Flow.
What is cash flow statement?
Cash flow is the inflow or outflow of cash and cash equivalents that a business generates or spends in a certain period of time. Cash flows differ from profits in most cases, which necessitates the preparation of a separate cash flow statement to assess the cash flows of the company. Profit is the money left behind after taking out all the expenses while cash flow refers to the flow of cash and equivalents. The difference between the two mainly arises from the presence of non-cash expenses, accounts receivable, and accounts payable, and other similar transactions.
Cash flows of a company can be assessed from the periodic cash flow statements prepared by the company. The statement typically has three parts: cash from operating activities, cash from investing activities, and cash from financing activities. To summarize, the three parts show how much cash has been generated or spent through the operations of the company, through investing activities, and the net flows of cash that are used to fund the company, respectively.
Why is there a need for a cash flow statement?
Due to the differences in the cash flows and profit figures, the income statement or the profit and loss statement typically isn’t enough to assess the financial position of a company. Even though profits have their importance, there are many who associate the success of a company on the basis of the ability of the company to manage their cash flows effectively. The epitaph, “cash is king” can be read on the tombstones of many failed businesses that went under as they didn’t have enough cash to stay afloat.
The importance of cash grows with the costs of financing available to companies. These days, with the recent increases in the monetary policy rates across several large economies including the United States, availability of cash and equivalents is paramount for the successful operations of any company. On the other hand, companies can carry on with their functions with low cash balances as additional financing is readily available at attractive rates. A prime example of a company going under due to the mismatch of their inflows and outflows is the Silicon Valley Bank which went under earlier this year.
For the sake of this article, we have used free cash flows generated in the trailing twelve months to assess the attractiveness of a company as an investment. The free cash flow figure for a company depicts the amount of cash and equivalents left with the company after cash outflows required for operations and to maintain capital assets. This shows the amount left over to repay creditors and to return profits of the company to its shareholders.
Our list of stocks from companies generating high cash flow includes tech giants such as Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOGL), and Apple Inc. (NASDAQ:AAPL), as well as companies from other industries, such as Exxon Mobil Corporation (NYSE:XOM), Bank of America Corporation (NYSE:BAC), and UnitedHealth Group Inc. (NYSE:UNH), among others.
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Methodology
We used stock screeners to identify companies that generate high cash flows. For this purpose, we used the free cash flow (FCF) figures for the trailing twelve months (TTM) for the stocks traded on the NYSE and the NASDAQ. We have ranked the companies based on the absolute figures for free cash flow during the trailing twelve months with the #1 ranked stock on our list having the highest cash flow. We have also mentioned the number of hedge funds that hold the shares for the companies on our list of 12 stocks from companies generating high cash flows to demonstrate their popularity among the prominent hedge funds tracked by Insider Monkey.
12. Meta Platforms, Inc. (NASDAQ:META)
Free Cash Flow Trailing Twelve Months: $24.0 billion
Number of Hedge Fund Holders: 225
Menlo Park, California-based Meta Platforms, Inc. (NASDAQ:META) is a technology conglomerate formerly known as Facebook, Inc. Its businesses are reported under two segments: Family of Apps – comprising social media web and smartphone apps Facebook, Instagram, Messenger, and WhatsApp; and Reality Labs – comprising augmented and virtual reality products including hardware, software, and content.
Meta Platforms, Inc. (NASDAQ:META) recorded a strong performance in the second quarter of the year with more than 10% y-o-y increase in both the top and bottom lines to post $32.0 billion in revenue and $7.8 billion in net income. GAAP EPS, at $2.98, exceeded consensus estimates by $0.09.
Meta Platforms, Inc. (NASDAQ:META) ranks #2 on our list of 12 stocks from companies generating high cash flow based on the number of hedge funds holding its shares as of June 30, 2023. The shares of the social media giant were owned by 225 hedge funds with a total value of $30.92 billion. Prominent hedge funds, such as Citadel Investment Group, Arrowstreet Capital, Tiger Global Management LLC, and GQG Partners, hold the highest number of shares among hedge funds.
11. Alibaba Group Holding Limited (NYSE:BABA)
Free Cash Flow Trailing Twelve Months: $24.2 billion
Number of Hedge Fund Holders: 112
Hangzhou, China-based Alibaba Group Holding Limited (NYSE:BABA) is a leading ecommerce company with businesses comprising China commerce, international commerce, local consumer services, logistics services, cloud, digital media and entertainment, innovation initiatives and others.
On March 28, Alibaba Group Holding Limited (NYSE:BABA) announced a new organizational and governance structure for the company under which the company will be divided into six major business groups with independent CEOs and board of directors. Five of the business groups will have the flexibility to seek their own IPOs while the sixth business group, Taobao & Tmall Group, will remain fully owned by the company.
As part of the plans for the new structure, on September 26, Alibaba Group Holding Limited (NYSE:BABA) announced its intention to spin-off and separate listing of Cainiao Smart Logistics Network Limited on the Stock Exchange of Hong Kong (HKEX). The company currently owns 69.54% shares of Cainiao and intends to retain more than 50% of Cainiao shares post-transaction.
As of Q2 2023, 112 of the 910 hedge funds tracked by Insider Monkey were long Alibaba Group Holding Limited (NYSE:BABA) shares, for a total value of $4.1 billion.
10. AbbVie Inc. (NYSE:ABBV)
Free Cash Flow Trailing Twelve Months: $24.8 billion
Number of Hedge Fund Holders: 74
North Chicago, Illinois-based AbbVie Inc. (NYSE:ABBV) is a global biopharmaceutical company with a focus on immunology, oncology, neuroscience, eye care, virology, women’s health, and gastroenterology, in addition to products and services across its Allergan Aesthetics portfolio.
On July 27, AbbVie Inc. (NYSE:ABBV), released its financial results for Q2 2023. It generated net revenues of $13.9 billion and a net income of $2.0 billion which translated into a normalized EPS of $2.91, $0.10 more than the consensus estimates.
On October 11, Morgan Stanley reaffirmed its ‘Overweight’ rating for AbbVie Inc. (NYSE:ABBV) shares and raised the target price from $189 to $193.
As of Q2 2023, 74 hedge funds tracked by Insider Monkey held shares of AbbVie Inc. (NYSE:ABBV), worth $2.4 billion.
9. Wells Fargo & Company (NYSE:WFC)
Free Cash Flow Trailing Twelve Months: $25.9 billion
Number of Hedge Fund Holders: 75
Founded in 1852, Wells Fargo & Company (NYSE:WFC) is a leading financial services company that provides banking, investment and mortgage products and services, as well as consumer and commercial finance services. It holds nearly $1.9 trillion in assets and is one of the leading financial services providers in the United States.
Wells Fargo & Company (NYSE:WFC) released its Q3 2023 financial results on October 13. Its total revenue increased by 7% y-o-y to $20.9 billion, while net income surged by 61% y-o-y to $5.8 billion.
Following the earnings release, on October 16, BMO Capital raised the price target on Wells Fargo & Company (NYSE:WFC) shares to $54 from $52 and maintained a ‘Market Perform’ rating for the shares.
Wells Fargo & Company (NYSE:WFC) and Bank of America Corporation (NYSE:BAC) are the only two financial services companies that have made it onto our list of 12 stocks from companies generating high cash flow. The shares of Wells Fargo & Company (NYSE:WFC) were owned by 75 prominent hedge funds as of June 30, with the aggregate shares held by these hedge funds valued at $4.1 billion.
8. Berkshire Hathaway Inc. (NYSE:BRK-B)
Free Cash Flow Trailing Twelve Months: $26.0 billion
Number of Hedge Fund Holders: 109
Warren Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. (NYSE:BRK-B) engages in diverse business activities including insurance and reinsurance, utilities and energy, freight rail transportation, manufacturing, retailing and services.
As of Q2 2023, Berkshire Hathaway Inc. (NYSE:BRK-B) shares were held by 109 prominent hedge funds with the total shares held by hedge funds valued at $15.5 billion. Bill & Melinda Gates Foundation Trust was the largest hedge fund shareholder on record with ownership of 25.1 million shares valued at $8.6 billion.
7. UnitedHealth Group Inc. (NYSE:UNH)
Free Cash Flow Trailing Twelve Months: $38.2 billion
Number of Hedge Fund Holders: 111
UnitedHealth Group Inc. (NYSE:UNH) provides health coverage, software, data, and consultancy services. Its health insurance business utilizes technology and data capabilities to help coordinate patient care, improve affordability, analyze cost trends, manage pharmacy benefits, and create a simpler consumer experience.
On October 13, UnitedHealth Group Inc. (NYSE:UNH) released its financial results for the third quarter of 2023. It generated a strong performance during the quarter with total revenue and net income both exceeding Q3 2022 figures by more than 10% at $92.4 billion and $6.0 billion, respectively.
Following the earnings release, RBC Capital raised the firm's price target on UnitedHealth Group Inc. (NYSE:UNH) shares to $596 from $572 and maintained an ‘Outperform’ rating.
As of Q2 2023, 111 of the 910 hedge funds tracked by Insider Monkey owned shares of UnitedHealth Group Inc. (NYSE:UNH), valued at $10.1 billion. Its largest shareholder was GQG Partners with ownership of 3.1 million shares valued at $1.6 billion.
6. Shell Plc (NYSE:SHEL)
Free Cash Flow Trailing Twelve Months: $41.8 billion
Number of Hedge Fund Holders: 43
Shell Plc (NYSE:SHEL), formerly known as Royal Dutch Shell Plc, is a global petrochemical and energy company with more than 80,000 employees in more than 70 countries.
As of Q2 2023, Shell Plc (NYSE:SHEL) shares were held by 43 of the 910 prominent hedge funds tracked by Insider Monkey, with a total value of $2.7 billion.In its Q2 2023 investor letter, Third Point Management, a New York-based investment advisor, made the following comments about Shell Plc (NYSE:SHEL):
“At just 7x consensus earnings, we see significant further upside in the stock. Enhanced focus and discipline will allow Shell to generate mid-teens shareholder returns via cash flow per share growth and dividends through the end of the decade, with additional upside from potential portfolio actions. While Shell has so far insisted on maintaining its conglomerate structure, we see positive signs that it has arrived at a coherent and compelling strategy for value creation and believe the company is in the right hands to materially improve its standing relative to peers.”
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Disclosure: None. 12 Stocks from Companies Generating High Cash Flow is originally published on Insider Monkey.
