By now you’ve gotten the memo that it’s time to own value stocks, since value beats growth when consumer prices and interest rates rise.
It’s obvious why you’d want inflation protection, typically in the form of pricing power. Limited exposure to surprise negative macro trends is key during uncertain times. But the importance of cash flow may be less intuitive.Three reasons why cash flow is king 1. Value investors love cash flow because it gives companies the flexibility to reward shareholders with dividends and share buybacks, says John Buckingham, a value investor who manages the Prudent Speculator investment letter.
“Free cash flow yield incorporates things that price-earnings ratios do not factor in,” says Buckingham. “It tells you how much money companies have to invest and reward shareholders.” “We are not meaningfully playing in that end of the swimming pool. That’s one of the differences between a value mentality and a growth mentality,” says Barish.
“Because broadband is a quasi-utility, they have enormous pricing power which affords them inflation protection,” says Marangi. This also gives Comcast CMCSA, -0.11% protection against economic downturns. Next, this is a capital-intensive business so the labor portion of expenses is relatively low. Despite these advantages, Comcast shares have been weak because of fears of competition, but Marangi thinks this threat is already priced into the stock.
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