When you’re looking for companies to invest in, those with plenty of free cash flow are a great option. Why are these such popular stocks to buy? That cash flow means the companies tend to be in good financial shape. In addition, having free cash flow means they have the flexibility to make moves as needed. This might include paying dividends, buying back shares, paying down debt or undertaking a big acquisition.
In other words, choosing to invest in companies with stacks of free cash flow helps to protect your investment and increases the odds it will grow in value.
Here are seven of the top picks for stocks to buy that offer impressive free cash flow:
- Academy Sports and Outdoors (NASDAQ:ASO)
- Atkore (NYSE:ATKR)
- Mr. Cooper Group (NASDAQ:COOP)
- Crocs (NASDAQ:CROX)
- First Bancorp (NYSE:FBP)
- Louisiana-Pacific Corporation (NYSE:LPX)
- Signet Jewellers Ltd. (NYSE:SIG)
Adding to the appeal of the stocks on this list, each earns coveted “A” grades for Free Cash Flow and Total ratings in Portfolio Grader.
Stocks to Buy: Academy Sports and Outdoors (ASO)
Texas-based Academy has grown to be one of the largest U.S. sporting goods and outdoor recreation retailers. Founded in 1938, it now has 259 stores in 16 states and has a portfolio of 19 private brands.
In September, the company reported record quarterly earnings. Net sales of $1.79 billion were up 11% year-over-year. Doubters might point to the pandemic’s effect on sales last year as potentially diluting those numbers. Academy covered its bases, noting that its net sales for the quarter were up nearly 45% compared to the same quarter in 2019.
That performance has driven ASO stock to 123% growth so far in 2021. However, that gain isn’t why Academy is on this particular list of stocks to buy. It’s the company’s adjusted free cash flow of $169.5 million for the quarter. That’s the kind of cash flow that gives it the flexibility to do things like spending $100 million to repurchase shares and pay down $99 million in debt, as Academy has done this year. In addition, Academy’s board of directors has announced a plan to repurchase up to an additional $500 million in shares over the next three years.
At the time of publication, ASO stock had a Free Cash Flow grade of “A” and a Total grade of “A” in Portfolio Grader.
Atkore is focused primarily on electrical infrastructure, supplying products like electrical cable, PVC tubing and metal conduits to house wiring. That position makes Atkore worth considering as one of the stocks to buy to take advantage of the infrastructure boom, as well as its free cash flow position. ATKR stock is up 149% so far in 2021, by the way.
Back to the free cash flow. For the past quarter, that was $284.4 million, up considerably from the $130.4 million reported for the same quarter in 2020. Is Atkore using this free cash flow to benefit investors? You bet.
Here’s a statement from the company’s CEO as part of the company’s Q3 earnings report: “During the quarter, we also successfully refinanced our debt and repurchased $75 million of Atkore common stock, further strengthening our balance sheet and demonstrating our diligent approach to deploying capital.”
ATKR stock scores “A” Free Cash Flow and Total grades in Portfolio Grader.
Stocks to Buy: Mr. Cooper Group (COOP)
Mr. Cooper Group is primarily in the business of residential mortgage servicing. In fact, the company is the largest non-bank servicer in the U.S., with a servicing portfolio of $668 billion (in unpaid principal balance).
That position has helped Mr. Cooper Group post some truly astounding free cash flow numbers during a hot real estate market. In 2018, that was $3.49 billion. The total dropped to $274 million in 2020, but so long as home sales and mortgage refinancing are in growth mode, that’s good news for keeping the Mr. Cooper Group free cash flow tap open. Adding to the attraction, COOP stock has posted growth of 44% so far in 2021, and 81% over the past 12 months.
The current Portfolio Grader Free Cash Flow grade for COOP stock is “A” and it also earns an “A” Total grade.
Crocs — the must-have, then derided, and now hot again — maker of casual foam footwear is having a very good year. The company’s record third-quarter earnings crushed analyst expectations. Revenue was up 73% year-over-year, despite many people returning to the office (and more formal attire), and supply chain challenges.
The company has now put together six straight quarters of positive free cash flow. Besides building up a strong balance sheet with cash and cash equivalents currently sitting at $436.6 million, Crocs has also been buying back shares. By the end of fiscal 2021, Crocs estimates its total share repurchases for the year will total $1.1 billion. Spectacular sales, celebrity partnerships and those stock buybacks have all had a part in pushing CROX stock to 193% growth so far in 2021.
At the time of publication, CROX stock had “A” ratings in Portfolio Grader for both Free Cash Flow and Total grades.
Stocks to Buy: First Bancorp (FBP)
First Bancorp is the holding company for Puerto Rico’s FirstBank. After beating analyst expectations for earnings in the third quarter, First Bancorp extended its streak of beating earnings-per-share estimates to four straight quarters. Given that, it’s probably not shocking that FBP stock has posted a gain of over 58% so far this year.
However, the streak that matters in terms of landing FBP on this list of stocks to buy is its free cash flow. Other than an off-year in 2007 (and honestly, what bank didn’t have an off year in 2007) First Bancorp consistently delivers strong free cash flow numbers. For the past 3 years, it has been flirting with reaching $300 million annually.
The current Portfolio Grader Free Cash Flow grade for FBP stock is “A” as is its Total grade.
Louisiana-Pacific produces building materials. That’s a solid position to be in with skyrocketing demand for homes and a big federal infrastructure spending program. LPX stock is up 81% so far this year.
Louisiana-Pacific is a poster child for the benefits of investing in a company with stacks of free cash flow ($497 million in 2020). The company currently has $620 million in cash, it’s expanding its share buyback program after repurchasing $399 million worth of shares in the quarter and LPX is paying an 18-cent cash dividend for the quarter.
At the time of publication, LPX stock scored “A” Portfolio Grader ratings for both Free Cash Flow and Total grades.
Stocks to Buy: Signet Jewellers (SIG)
The world’s largest diamond jewellery retailer, Signet Jewellers had to adapt to a brick and mortar retail environment that was ravaged by the pandemic. Its investment in e-commerce continues to pay off with online sales in the latest quarter that were up 24.5% YoY. With shoppers back in stores, same-store sales saw an impressive 97.4% increase. SIG stock has responded with 267% growth so far in 2021.
Signet has twice shattered the $1 billion in annual free cash flow level over the past four years. The company continues its strategy of returning some of that cash to shareholders, through an expanded share repurchase program worth $225 million and an 18 cent cash dividend. In addition, it recently announced the all-cash acquisition of competitor Diamonds Direct.
SIG stock is on this list of stocks to buy because it currently scores an “A” in Portfolio Grader for both Total grade and Free Cash Flow grade.
On the date of publication, Louis Navellier had a long position in ATKR, COOP, CROX, FBP, LPX and SIG. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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