If You Like Cash Flow Machines Take A Look At HCA

Here is why we think HCA is worth a look

• Not many stocks offer free cash flow yield of 5.2%, but HCA does
• Last 12 month revenue growth of 7.3% and operating margin of 15.0% show good fundamentals
• At PE of 16.4, 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, HCA isn’t immune to big dips. It lost about 23% during the 2018 correction, dropped over 54% in the Covid pandemic sell-off, and fell nearly 40% in the inflation shock. Even with solid fundamentals, these pullbacks show the stock can swing hard when markets turn sour. Good business won’t stop sharp drops when risk is high.

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.