FI Generates Strong Cash So Why Are You Not Considering It?

Here is why we think FI is worth a look

• Not many stocks offer free cash flow yield of 5.1%, but FI does
• 3-Year average revenue growth of 7.6% and operating margin of 25.7% show good fundamentals
• At PE of 29.8, this combo of cash yield, growth, and margin could get noticed

That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure

Proof That It Works

Here are some stocks that showed strong cash flow yield in mid 2024, and saw strong returns in the subsequent 12 months

• FFIV gained 70% in a year after showing a 6.9% free cash flow yield
• CSCO had 6.6% yield, and returned 50% in the next 12 months
• PM rose over 85% percent as the market noticed its 5.7% free cash flow yield and good underlying growth

But Consider Risk

That said, this stock isn’t immune to sharp drops. It fell about 38% in the Dot-Com bubble and over 51% during the Global Financial Crisis. The 2018 correction only clipped it by around 16%, but the Covid sell-off still took it down near 38%. Even the recent inflation shock pushed it down roughly 30%. Solid fundamentals matter, but when the market turns, downside can be steep regardless.

Picking winners on a consistent basis is not an easy task – especially given the volatility associated with a single stock. Instead, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.