A favorite tool of value investors, the price-to-cash-flow is
a gauge of the market's beliefs in a company's future financial
health. Uses as an indicator of relative value, the
price-to-cash-flow ratio is arrived at by dividing the current
by cash flow per share
Indeed, stocks with low price-to-cash-flow ratios mean that
cash flow is robust relative to the share price and these "stocks
having a low ratio outperform those with a high price to cash
flow ratio 78% of the time,"
according to Thomas Bulkowski
As is the case with other valuation metrics, high and low
price-to-cash-flow ratios are not indigenous to just one or two
sectors. However, some industry groups are currently home to an
impressive number of low price-to-cash-flow stocks, indicating
can be a useful tool for investors looking to exploit this
Vanguard Information Technology ETF (NYSE:
) Not only is VGT now the technology ETF with the
lowest expense ratio at just 0.14 percent per
, the fund is home to fair amount of low price-to-cash-flow
screen for mega-cap names
low price/free cash flow ratios turned up just three names, but
two of those were Apple (NASDAQ:
) and Microsoft (NASDAQ:
), which combine for 24.3 percent of VGT's weight.
Other VGT holdings that fit the bill as low P/FCF names
include Broadcom (NASDAQ:
), Symantec (NASDAQ:
), Cisco (NASDAQ:
), Dell (NASDAQ:
), Hewlett Packard (NYSE:
) and Western Digital (NYSE:
). That is not the entire list of low P/FCF VGT constituents and
that tells investors this ETF has ample exposure to companies
that should be financially durable going forward.
iShares Dow Jones U.S. Healthcare Providers Index Fund (NYSE:
) For the purposes of the screen used to find low
price-to-cash-flow stocks, "low" was considered to be a ratio of
15 or lower. A fair amount of health insurance providers popped
up. That underscores the notion that low P/FCF stocks outperform.
Over the past year, iShares Dow Jones U.S. Healthcare Providers
Index Fund, an ETF often overlooked in the health care sector ETF
conversation, has gained more than 19 percent.
Dow component and IHF's largest holding UnitedHealth (NYSE:
), IHF's largest holding, and WellPoint (NYSE:
), the ETF's third-largest holding, both popped up in the screen.
Those two names combine for over 19 percent of the IHF's
Also appearing in the screen were Express Scripts (NASDAQ:
), Cigna (NYSE:
), Aetna (NYSE:
) and Humana (NYSE:
). That quartet combines for over 27 percent of IHF's weight.
SPDR S&P Insurance ETF (NYSE:
) Health insurance firms are typically viewed as a sub-industry
of the health care sector, but even with that, there are plenty
of financial services and bank stocks that currently trade with
low P/FCF ratios. Excluding the traditional banking names, which
include PNC Financial (NYSE:
), US Bancorp (NYSE:
) and Wells Fargo (NYSE:
), we opted for less volatile insurance providers.
By that metric, the SPDR S&P Insurance ETF has a beta of
0.99 against the S&P 500,
according to State Street data
. That compares favorably with a beta of 1.23 on the Financial
Select Sector SPDR (NYSE:
KIE is nearly an equal-weight ETF and its largest holding
receives a weight of just 2.83 percent. However, plenty of the
ETF's 46 holdings appeared on our large-cap screen for low P/FCF
stocks. That list includes Ace (NYSE:
), Chubb (NYSE:
), Aflac (NYSE:
), Hartford Financial (NYSE:
), MetLife (NYSE:
), Prudential Financial (NYSE:
) and Dow component Travelers (NYSE:
). The result is KIE has surged nearly 29 percent in the past
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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