Go with the (free cash) flow

By The Motley Fool

Welcome to the world of the cash kings, where we highlight businesses that generate a healthy dose of free cash flow.

Why is cash flow so important? Because it gives management the flexibility in boosting shareholder value by:

• Paying dividends.
• Buying back shares at attractive prices.
• Growing the business organically without having to borrow money or sell shares.

Investing, after all, is about putting money up front today in order to get more of it in return tomorrow. We're firm believers that free cash flow, as opposed to traditional accounting earnings, is the best gauge of a firm's health and profitability (or lack thereof).

I'll highlight three cash-flow rulers of our MSN CAPS kingdom.

• MSN CAPS: The wisdom of the investing crowd

Unlike Circuit City Stores (CC, news, msgs), a cash-burning company that's overwhelmingly out of favor with CAPS participants, these are businesses that the community is pretty bullish about and that have free-cash-flow-to-sales margins of 15% or higher.

Churning out cash

Company	Sector	Free-cash-flow-to-sales margin (trailing 12 months)	Market value	CAPS rating
Akamai Technologies	Internet content delivery	28.5%	$5.2 billion	****
Altria Group	Cigarettes	17.6%	$43.5 billion	*****
Infosys Technologies	Technical and system software	17.0%	$21.2 billion	****

As always, don't consider these stocks as formal picks, but rather as suggestions worth further investigation. For starters, here's a quick summary of these cash-throwing kings, and how some of their loyal CAPS followers feel about them.

As the Internet's leading content delivery network, Akamai Technologies (AKAM, news, msgs)has colossal scale, legitimate intellectual property and a blue-chip roster of clients –- including Apple (AAPL, news, msgs) and Microsoft (MSFT, news, msgs) -- to keep its war chest stuffed with cash.

CAPS player "singhash" recently weighed in on why Akamai might be a particularly timely buy:

"Rising oil prices are wonderful news for a company like Akamai: driving to the video store costs as much in gasoline as a rental off iTunes, which, coincidentally, uses Akamai as a content delivery network," the CAPS participant wrote. "Akamai serves an essential function on the Web, and it does so in a relatively economical manner. Beyond straightforward content distribution, however, Akamai also provides a number of very useful content distribution and management solutions."

The next cash-flow monarch on our list is Altria Group (MO, news, msgs). Over the last several decades, Altria has leveraged its market-share dominance in the U.S., its iconic brand names (like Marlboro, Virginia Slims and Parliament) and the stable nature of its business model to provide wealth-building dividends and buybacks for shareholders. And, of course, those dividends have been Altria's key to becoming the best-performing stock over the last 50 years.

CAPS player "hokiej88" explains why that market-beating trend should continue:

"Very undervalued," hokiej88 wrote of the stock. "Has plenty of cash stockpiled and can look to acquire more tobacco companies or offer their shareholders an increased dividend or large stock repurchase programs to boost the value of their stock. The fact that they also still own 30% of SABMiller is inviting as well."

Our last free-cash-flow ruler this week is Infosys Technologies (INFY, news, msgs), one of the world's largest IT services companies.

Factors driving the cash accumulation for this Bangalore, India, company are its cost advantages over rivals Accenture (ACN, news, msgs) and Wipro (WIT, news, msgs), its ability to charge premium prices for its services and the massive trend toward global outsourcing.

In November, CAPS player "forexjeff" helped spread more information about Infosys:

"Indian outsourcing should see revenues universally increase as domestic spending tightens and CIOs across large and mid-cap companies look for cost-saving mechanisms ... (Infosys) has fantastic financials, very good management and good growth opportunity across the board in U.S. and European markets. They are the top dog in India outsourcers, so look for them to move."

Free-cash-flow-generating companies like Akamai, Altria and Infosys are always among my top candidates to research further. Our CAPS intelligence database is a great place to look for your own cash kings or read how your fellow investors feel about thousands of other stocks. Until then, may your cash flow reign supreme.

This article was reported and written by Brian D. Pacampara for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.

Editor's note: MSN CAPS is an investor intelligence service hosted by The Motley Fool. Companies are rated by players to outperform or underperform the market and are subsequently ranked from one star (the lowest) to five stars. Between Jan. 3, 2007, and May 12, 2008, five-star companies outperformed the SPDR Trust, an exchange-traded fund that tracks the S&P 500, by an average of 9 points, annualized, while one-star companies underperformed by an average of 15.6 points, annualized.