The Wall Street Journal offers that the magnificent 7 are so last year. Cash cows are the new Kings. A WSJ article looks at ETFs that seek out the most cash flow rich companies. Free cash flow is generally defined as money left over after expenses and capital expenditures that a company can return to shareholders. We can call that the shareholder yield. It’s a measure of profitability. It can be a modern-day look at value investing. Let’s take a look at the show me the money stocks and ETFs.
Here’s the post – cash cows are Kings.
Last week we were slanting to value on the Sunday Reads. You’ll see that at today’s valuation levels, U.S. stocks (IVV) are likely to offer no real return over the next 5 to 10 years. Of course past non-performance does not guarantee future returns.
Valuation rethink?
But many investors are in search of value. And old rules may no longer apply.
But the professors’ results covered a period when companies’ value was mostly in property and machinery rather than brands and intellectual property. Fifty years ago, less than a fifth of the S&P 500’s assets were intangible. Today it is well over four-fifths, and many top-performing companies like Microsoft are “asset-light.”
The graphic above shows the incredible positive effect of free cash flow on stock performance.
Here’s the link to the COWZ cash flow ETF.
In a Seeking Alpha article Kurtis Hemmerling backtested the top free cash flow yielding stocks in the Russell 1000.
Portfolio 123 backtested the top 10 free cash flow yielding stocks in the S&P 500 …
Big returns in small caps
Kurtis shows the effect of free cash flow in the small cap space …
Norm Rothery at StingyInvestor.com tracks a U.S. free cash flow portfolio, here’s the latest.
The GARP Portfolio
There is a GARP ETF – growth at a reasonable price.
That ETF has eked out a beat over the market. It only holds one of the magnificent 7 in NVIDIA (NVDA). The trailing PE ratio is a very attractive 15.15.
The earnings beat goes on for U.S. stocks
This past week 51 of 77 companies reporting beat expectations.
The earnings scorecard for the week was decked in green, with 51 S&P 500 companies reporting EPS wins out of the 77 that reported earnings this week. Out of those, 45 names surpassed revenue estimates.
Almost 77% of the S&P 500 companies that have reported results so far this quarter, have recorded an EPS beat, 4% were in-line, while 19% of companies reported a miss. In terms of revenue, 60% of the companies beat on the top line and 40% trailed estimates.
Discretionary vs staples stocks
The divide between discretionary vs consumer staples stocks …
That’s likely a good sign for the value that’s available in consumer staples. We’ll see you in the next recession. We can see the staples move to outperformance during the past two recessions.
TD Bank sells Schwab
TD Bank sold its interest in the very profitable Schwab, and the market rewarded the stock. TD will use the funds to buy back shares, and expand and grow its Canadian operations.
How to invest in Canadian Banks.
More Sunday Reads
It was about as busy as it gets for Dividend Hawk’s portfolio. So many of his companies reported. You’ll find summaries for all in the weekly post. A nice surprise came from CVS that I hold in my RRSP.
CVS Health Corporation (CVS) Reports Fourth Quarter and Full-Year 2024 Results; CVS reported Non-GAAP EPS of $1.19, beating analyst estimates by $0.27 but decreasing 43.9% year-over-year. Revenue came in at $97.71 billion, a 4.2% increase compared to last year, exceeding expectations by $830 million. Management provided initial 2025 adjusted EPS guidance in the range of $5.75 to $6.00.
That’ has been one of our rare losers in the U.S. stock portfolio, but it had an incredible week, up 21.7%.
Canadian readers might be interested in the Telus earnings report.
TELUS Corporation (TSE:T) Reports Operational and Financial Results for Fourth Quarter 2024; T reports Non-GAAP EPS of C$0.25, beating analyst estimates by C$0.03 and increasing 4.2% year-over-year. Revenue for the quarter ended Dec. 31 was CA$5.38 billion, up from CA$5.20 billion a year earlier, while analysts expected CA$5.24 billion. Management expects 2025 revenue to grow of 2% to 4% and expects consolidated free cash flow of approximately $2.15 billion in 2025.
Telus might be one of the least dirty shirts in a very challenged sector. I sold my Bell in early 2024. Telus was up 5.3% for the week. We also hold Quebecor (QBR.B.TO) given that they are the owner of the Freedom Mobile discount brand. We also have modest positions in Hamilton’s leveraged utilities ETF – (HUTS.TO).
Canada’s largest pipelines also reported
Enbridge Inc. (ENB) Reports 2024 Financial Results; ENB reported Non-GAAP EPS of $0.75, a 17.2% increase from the previous year and in line with estimates. Revenue rose 43.5% to C$16.22 billion from a year ago, analysts expected C$7.70 billion. Management reaffirms its 2023 to 2026 near-term growth outlook of 7-9% for adjusted EBITDA growth, 4-6% for adjusted earnings per share (EPS) growth and approximately 3% for DCF per share growth.
TC Energy Corporation (TRP) Reports Fourth Quarter 2024 Operating and Financial Results; TRP posted Q4 Non-GAAP EPS of C$1.05, surpassing analyst expectations by C$0.05, though it marked an 8.7% decline year-over-year. Revenue increased 2% to C$3.58 billion, but slightly missed the C$3.62 billion forecast by analysts. Management expects full-year 2025 comparable EBITDA from continuing operations of $10.7 to $10.9 billion. Comparable EPS for 2025 is expected to be lower than in 2024.
Enbridge results were impressive and TC Energy results are particularly good, they are firing on all cyclinders after the South Bow spin off. Canadian energy stocks are under some pressure due to the threat of tariffs from Trump. They don’t know which way to turn. All said, the U.S. needs our energy and there is no replacement in the near term. Also, no one knows how much of the Trump talk is bluster or real “policy”.
Tariffs are bad policy, inflationary and anti-growth, we have that ‘going for us’. The markets and voters are likely to eventually apply pressure to put an end to any widespread tariff war, should that become a reality.
Get some super glue
Given all of the anxiety and uncertainty in the world right now, Findependence Hub offers – Stock market anxiety leads to poor decisions. Here’s what to do instead.
It’s the same message that I have repeated on this blog, more than any other message – get an investment plan and stick to it like glue. These days you might need some super glue, and that’s fine. A balanced portfolio can handle most anything over time. Plus, always invest within your risk tolerance level. Be prepared for things to ‘go bad’ for a while, because they might. We have to be prepared for the good times and dark periods.
Banker on Wheels offers another nice mix of posts and podcasts. That includes – The hidden risk of U.S. stocks and why international diversification still matters.
Stock market lessons from 2024
Another good post is – 9 lessons the market taught in 2024. While you can ignore all of the lessons if you already have a set-it-and-forget-it portfolio, there are still some very interesting and relevant observations. While valuation suggests very poor returns for the U.S. market over the next 10 years, valuation can’t predict short term results.
On January 1, 1997, the CAPE 10 was at 28.3. The highly regarded (at least at the time) Chairman of the Board of the Federal Reserve, Alan Greenspan, gave a talk in which he famously declared the U.S. stock market to be “irrationally exuberant.” That speech, given in Tokyo, caused the Japanese market to drop about 3%, and markets around the globe followed. Over the three years 1997 through 1999, the S&P 500 Index returned 33.4%, 28.6% and 21.0%, respectively, producing a compound return of 27.6%.
An accumulator with decades to go might always ignore valuation concerns. Those market corrections provide wonderful opportunities to buy stocks as they go on sale. At times the corrections provide a wonderful valuation reset, you’re able buy some wonderful current earnings yields (at the time). From 1997, here’s an accumulator investing $1000 per month in the U.S. stock market (S&P 500).
Retirees might pay attention to valuation, as returns over the next several years or decade do matter. For U.S. stocks, I like a mix of growth (market-like) and a U.S. valuation basket.
Join Cut The Crap Investing
You can follow this blog, it’s free. Newsletters, plus other free content and ‘ideas’ will be delivered to your email inbox. Enter your email in the subscribe area, or ‘join us today’ on the home page.
ETFs / Stock Portfolios / Retirement Strategies / Wealth Creation/ Retirement Club
Thanks Partners
Earn a break on fees by way of many of these partnership links.
CANADA’S TOP-RANKED DISCOUNT BROKERAGE
Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free. It’s a great place to build your stock portfolio.
Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and low-fee ETF portfolios all at one shop.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.0%. You’ll find some higher rates on GICs up to 4.00%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
The Tangerine Cash Back Credit Card
For December we received $45.46 in cash. You can select 3 categories for 2% cash back. The rest pays at 0.50%.
That cash went into my TFSA account to buy some bitcoin and chips / CHPS.TO, ha.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me (try to) pay the bills for this site. But they don’t, ha. That will allow me to keep this site free of ads and easy to read.
Leave a Reply