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3 ETFs & Stocks to Defy Dwindling Cash at U.S. Companies
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Usually most investors put stress on fundamental factors like price-to-earnings (P/E), price-to-book (P/B) and the PEG ratio to value a company. But they sometimes ignore cash flow measures. As we know that cash cushion is always needed in a rough market, one can easily take a look at the indicators related to cash flows to measure the performance of a company (read: Inside Pacer's Planned Cash Cow ETF Pack of Three).
This being said, we would like to note that cash conditions of U.S. companies haven’t been too good lately. Burdened by a year-and-a-half of flagging profitsand expenses on activities like buybacks and dividends,U.S. companies have now started to see leakage in its huge cash loads, as per Bloomberg. Cash and equivalents dropped to a median $860 million for the S&P 500 Index members in Q2, reflecting a three-year low level.
In fact, half of the total cash is sitting with the top 50 wealthiest companies on the index. But the rest are seeing cash gushing out “at the fastest rate since the start of the bull market.” Earnings recession for six quarters in a row was responsible for this cash exhaustion. Bloomberg noted that earnings before interest and taxes at S&P 500 companies were $1.1 trillion in the fiscal year ended last quarter, which represented the lowest level since 2011.
But this does not mean there are no stocks that have a huge cash pileup. There are still plenty of such in the universe; it’s just that investors have to find them out. For them, we have highlighted four ETFs and stocks that focus on cash flow (read: Invest in These ETFs to Capitalize on Cash Strength).
ETF Picks
TrimTabs International Free-Cash-Flow ETF
While this fund does not directly deal with stocks with low P/CF ratios, it has an indirect approach to the same objective. The fund looks to track 100 international companies with the highest free cash flow yields in 10 international markets, namely Canada, Germany, United Kingdom, Hong Kong, Japan, France, Switzerland, Netherlands, South Korea and Australia. The fund charges 69 bps in fees.
The fund is based on the research that free cash flow is a key predictor of a company’s strength. This product invests in companies that show strong characteristics in returning free cash flow to their shareholders by way of cash dividends, share repurchases or by reducing their leverage. It charges 59 bps in fees.
Pacer Global High Dividend ETF
The ETF looks to provide a steady stream of income and capital appreciation by picking companies with a high free cash flow (FCF) yield and an impressive dividend yield. The fund accomplishes its objective by tracking the Pacer Global Cash Cows Dividends 100 Index.
Stock Picks
We picked three stocks on the basis of factors mentioned below:
Newmont Mining Corporation (NEM - Free Report) : The company is into the production and exploration of gold. It has a VGM score of ‘C.’
Want more information on the world of ETFs? Make sure to check out the podcast below where we discuss the investing landscape with Kevin O’Leary and Connor O’Brien of O’Shares Investments:
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
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3 ETFs & Stocks to Defy Dwindling Cash at U.S. Companies
Usually most investors put stress on fundamental factors like price-to-earnings (P/E), price-to-book (P/B) and the PEG ratio to value a company. But they sometimes ignore cash flow measures. As we know that cash cushion is always needed in a rough market, one can easily take a look at the indicators related to cash flows to measure the performance of a company (read: Inside Pacer's Planned Cash Cow ETF Pack of Three).
This being said, we would like to note that cash conditions of U.S. companies haven’t been too good lately. Burdened by a year-and-a-half of flagging profitsand expenses on activities like buybacks and dividends,U.S. companies have now started to see leakage in its huge cash loads, as per Bloomberg. Cash and equivalents dropped to a median $860 million for the S&P 500 Index members in Q2, reflecting a three-year low level.
In fact, half of the total cash is sitting with the top 50 wealthiest companies on the index. But the rest are seeing cash gushing out “at the fastest rate since the start of the bull market.” Earnings recession for six quarters in a row was responsible for this cash exhaustion. Bloomberg noted that earnings before interest and taxes at S&P 500 companies were $1.1 trillion in the fiscal year ended last quarter, which represented the lowest level since 2011.
But this does not mean there are no stocks that have a huge cash pileup. There are still plenty of such in the universe; it’s just that investors have to find them out. For them, we have highlighted four ETFs and stocks that focus on cash flow (read: Invest in These ETFs to Capitalize on Cash Strength).
ETF Picks
TrimTabs International Free-Cash-Flow ETF
While this fund does not directly deal with stocks with low P/CF ratios, it has an indirect approach to the same objective. The fund looks to track 100 international companies with the highest free cash flow yields in 10 international markets, namely Canada, Germany, United Kingdom, Hong Kong, Japan, France, Switzerland, Netherlands, South Korea and Australia. The fund charges 69 bps in fees.
Cambria Shareholder Yield ETF ((SYLD - Free Report) )
The fund is based on the research that free cash flow is a key predictor of a company’s strength. This product invests in companies that show strong characteristics in returning free cash flow to their shareholders by way of cash dividends, share repurchases or by reducing their leverage. It charges 59 bps in fees.
Pacer Global High Dividend ETF
The ETF looks to provide a steady stream of income and capital appreciation by picking companies with a high free cash flow (FCF) yield and an impressive dividend yield. The fund accomplishes its objective by tracking the Pacer Global Cash Cows Dividends 100 Index.
Stock Picks
We picked three stocks on the basis of factors mentioned below:
Zacks Rank #1 (Strong Buy) You can see the complete list of today’s Zacks #1 Rank stocks here.
Most recent cash ratio, which measures the company’s cash and cash equivalents to its current liabilities greater than one.
Price-to-Cash Flow less than the median price-to-cash flow of the S&P 500 index.
Our chosen stocks are:
Sanderson Farms Inc. : The company is a fully integrated poultry processing company. It has a VGM score of ‘A’.
The Children's Place Inc. (PLCE - Free Report) : This is a specialty retailer of apparel and accessories for newborn to 12-year-old children. It has a VGM score of ‘A’ (read: 3 Retail ETFs & Stocks Can Defy Soft Data).
Newmont Mining Corporation (NEM - Free Report) : The company is into the production and exploration of gold. It has a VGM score of ‘C.’
Want more information on the world of ETFs? Make sure to check out the podcast below where we discuss the investing landscape with Kevin O’Leary and Connor O’Brien of O’Shares Investments:
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>