Cash Is King
Contents
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INTRO
In the ever-evolving world of investing, trends may shift rapidly, but one timeless truth remains: cash is king.
If you want to find long-term winners, you need to look past the usual financial metrics and get to the heart of what really drives a company—its ability to generate Free Cash Flow.
FCF represents the cash left over after a business covers its operating costs and capital investments, giving companies the flexibility to reinvest, pay off debt, or reward shareholders through dividends or stock buybacks. In other words, strong FCF is a sign of a healthy, well-run company.
So, which companies are excelling in this critical area? Let’s zoom in on three cash flow champions that should definitely be on your radar:
- Amalgamated Bank (AMAL)
- American Express (AXP)
- HF Sinclair (DINO)
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These companies aren’t just generating impressive levels of FCF; they’re turning it into real value for investors. Whether you’re looking for income, growth, or both, these stocks have the potential to deliver.
Let’s dive into why these three companies, with their strong FCF yields and financial flexibility, should be considered serious contenders for your portfolio.
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AMALGAMATED BANK (AMAL): Cash Flow With a Purpose
Amalgamated Bank might not be a household name, but it’s quickly becoming a standout when it comes to cash flow generation. This mission-driven bank, known for its commitment to social responsibility, is all about creating strong cash returns while staying true to its values.
With an impressive FCF yield of 11.2% and a Price/CF ratio of 8%, AMAL is producing substantial free cash flow relative to its market price, making it a highly efficient cash-generating machine.
The bank’s dedication to social causes like sustainability and supporting unions and nonprofits doesn’t get in the way of its financial prowess. In fact, its 12% revenue growth in Q2 2024 shows that AMAL’s ability to convert revenue into cash flow is one of its strongest assets. Every move it makes is tied back to how efficiently it can turn growth into cash.
While not known for large dividend payouts, Amalgamated’s high free cash flow gives it the flexibility to reinvest in its business or potentially increase shareholder returns in the future. Its P/E ratio of only 10 makes the stock even more attractive, especially given its ability to maintain a 49% operating income margin, further boosting its cash generation potential.
Looking ahead, with the political deposit business expected to grow ahead of the Presidential election, AMAL is primed to generate even more cash. For investors focused on strong free cash flow and long-term growth, Amalgamated Bank is one to keep a close eye on.
American Express ($AXP): Cash Flow From Your Wallet to Theirs
When most people think of American Express (AXP), they imagine sleek credit cards, travel perks, and luxury experiences. But behind all that, this company is a serious cash flow machine. With an FCF yield of 8.1% and a Price/CF ratio of 7.7%, American Express isn’t just about premium services—it’s a beast at turning revenue into cash.
The secret to AXP’s cash flow success? Its business model is built on charging higher fees to merchants and attracting big-spending customers who love their perks. This means even when times are tough, American Express keeps raking in the cash.
In fact, the company saw 44% earnings growth year-over-year in Q2 2024, thanks to a jump in card fee revenues and new customers. And that growth? It all flows straight into more cash.
American Express also has a gross margin of 62%, which shows just how profitable they are at turning a dollar into serious returns. While the dividend yield may only be 1.2%, AXP doesn’t just hand out cash through dividends—they use their strong cash flow to buy back shares, boosting the value for long-term investors.
What really sets AXP apart is its ability to stay ahead of the competition while keeping that cash flowing. Their network connects high-spending cardholders with merchants who are willing to pay a premium to serve them, meaning more cash keeps rolling in.
Plus, with the boom in digital payments, AXP is cashing in even more. And don’t forget, American Express is smart with its cash. They recently raised $3.4 billion in debt securities, giving them even more financial flexibility to invest in growth or return more to shareholders. Even with these investments, AXP is sitting pretty, keeping its balance sheet strong while using its cash flow to drive future growth.
In the end, American Express is all about cash—generating it, growing it, and sharing it. The stock has surged 89% in the past 11 months (see graph below), blowing past the S&P 500’s 41% return. So, whether you're after reliable income or long-term growth, AXP’s ability to keep that cash flowing makes it a top pick.
HF Sinclair ($DINO): Big Cash Flow in the Energy Sector
HF Sinclair might not be the biggest name in the energy game, but with a FCF yield of 21%, it’s proving to be one of the most efficient cash generators in the industry. This independent refiner isn’t just about pumping out gasoline, diesel, and renewable diesel—it's capitalizing on some major shifts in the North American energy landscape.
Thanks to cheaper feedstocks from shale drilling and Canadian crude, combined with the fact that there haven't been many new refineries built in recent years, Sinclair has been able to run its facilities at extremely high utilization rates, squeezing out more cash from each barrel.
Operating in a capital-intensive industry, where many companies get bogged down by debt or volatile commodity prices, Sinclair stands out. By focusing on keeping its costs low and running efficiently, it’s been able to keep its cash flow rolling, even when market conditions get tough.
In 2022 and 2023, Sinclair had a couple of stellar years, generating massive amounts of cash and using it to pay down debt and buy back 10% of its outstanding shares. This isn’t just a short-term win either—Sinclair’s ability to consistently produce high cash flow puts it in a strong position for long-term growth.
What makes Sinclair particularly appealing right now is that it’s trading at just 3.8 times free cash flow and 4.9 times earnings—which is dirt cheap, especially when you consider its steady performance and future potential.
This isn’t your average refiner. It’s a company that knows how to turn high utilization rates into serious profits and strong returns for shareholders. And let’s not forget Sinclair's pivot toward renewable diesel, which is a smart play in the ever-growing demand for cleaner energy. This move not only positions Sinclair as a leader in renewables but also provides even more avenues for future growth.
For investors, HF Sinclair offers a rare mix of high free cash flow, solid value, and exciting growth prospects. Whether you’re looking for a steady performer in the energy sector or a company poised to take advantage of the transition to renewable energy, Sinclair checks all the boxes.
With its focus on cash generation, smart capital allocation, and forward-thinking strategy, this stock could be a hidden gem waiting to be discovered!
What About Returns?
The ROE levels for these 3 companies reflect their strong ability to generate returns on equity, signaling that these companies are highly efficient in using their equity capital to generate profits.
These robust ROEs are closely tied to their solid cash flow generation, making them standout investments for those seeking both profitability and financial stability!
Why Cash Flow is the Ultimate Indicator
As we’ve seen with Amalgamated Bank, American Express, and HF Sinclair, Free Cash Flow is one of the most important metrics to consider when evaluating a company’s financial health. Unlike earnings, which can be manipulated through accounting tricks, FCF provides a clearer, more reliable picture of how much cash a company is actually generating. And when it comes to investing, cash is king.
High FCF yields, like the ones these companies are boasting, often signal that a stock is undervalued. This gives investors the opportunity to buy in at a good price and benefit from the company’s ability to generate cash over time.
Companies with strong FCF also have the ability to reinvest in their business, pay down debt, or return value to shareholders through dividends or buybacks. This flexibility makes them more resilient to economic downturns and better positioned for long-term success.
Investors who focus on FCF also gain peace of mind, knowing that the company has the financial strength to handle whatever challenges may arise. Whether it’s expanding operations, launching new products, or simply returning cash to shareholders, companies with strong FCF have the resources to thrive in any market condition.
Conclusion: Follow the Cash Flow
At the end of the day, if you’re serious about finding reliable, long-term investments, following the cash is one of the smartest strategies you can use.
Amalgamated Bank, American Express, and HF Sinclair are three companies that have proven their ability to generate significant Free Cash Flow, making them top picks for any investor looking for both stability and growth potential.
Whether you’re after steady dividends from American Express, high growth potential with a social impact from Amalgamated Bank, or strong cash flow from HF Sinclair’s energy operations, these companies have the financial flexibility to deliver.
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Information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions. I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP.
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