Chief Income Strategist Marc Lichtenfeld is a huge fan of companies with strong and growing cash flow. Anyone who’s spent just a few minutes around him knows that.

If you think I’m exaggerating… think again.

Marc recently told me a story about a salesman coming to his house to sell a certain company’s products. When Marc heard the name of the company, he replied, “Oh, I’ve heard of it. Great company. Generates a ton of cash flow.”

(The salesman, of course, wasn’t sure how to respond.)

Last week, Marc sat down for an interview with our friends at MarketBeat to discuss why investors should pay much more attention to cash flow than earnings.

He also gave away the names and tickers of two potential diamonds in the rough to buy now and two “ticking time bomb” stocks to avoid:

• An established drugmaker whose free cash flow is projected to triple this year
• An under-the-radar way to get exposure to the AI space
• A household name (literally) that has been bleeding billions of dollars for the past decade
• A company that he says is “complete garbage” and whose earnings are “a joke”!

Click the image above to watch the full interview and get the details on all four stocks!

The post 2 Stocks to Buy That Are Swimming in Cash appeared first on Wealthy Retirement.

That’s how many variables my Value Meter spreadsheet is crunching right now. And out of all that data, one number jumped off the screen.

It shows the best cash generator in the entire dataset.

It’s not a tech darling. Not a resource giant. Not a bank.

It’s a flooring company – the kind of “boring” business most hype-obsessed investors completely overlook (if they’ve even heard of it).

Thankfully, you won’t be one of them.

To be fair, Mohawk Industries (NYSE: MHK) isn’t just a flooring company. It’s the largest flooring company in the world, and it sells its products under well-known brands like Daltile, American Olean, Pergo, and Karastan.

It sells to both residential and commercial customers, with a vertically integrated model that includes manufacturing, distribution, and logistics. That integration helps the company control costs, protect margins, and respond faster to shifts in demand.

Plus, Mohawk’s reach is global, spanning North America, Europe, and other regions, which gives it economies of scale. Meanwhile, its focus on design innovation and premium product lines helps it compete in both high-end and budget markets.

The company just wrapped up its second quarter of fiscal 2025 with $2.8 billion in sales, which was flat year over year despite a sluggish housing market. Adjusted earnings per share came in at $2.77, and the company produced roughly $125 million in free cash flow for the quarter.

Margins were a little softer, with adjusted gross margin slipping to 26.4% and operating margin to 8.0%. But Mohawk still found room to return capital to shareholders, buying back $42 million worth of stock and authorizing a new $500 million repurchase program. Net debt stands around $1.7 billion, with leverage at just 1.2 times EBITDA (earnings before interest, taxes, depreciation, and amortization).

At first glance, Mohawk Industries might look like a solid but unremarkable industrial.

But The Value Meter sees something else entirely.

On an enterprise value-to-net asset value (EV/NAV) basis, Mohawk trades at 1.15. That’s a price of just over $1 for every dollar of net assets – a fraction of the 12.32 average for its peers.

Next is the free cash flow-to-net asset value (FCF/NAV) ratio, which stands at 1.56%. That’s a far cry from the peer group’s -26.98%, meaning Mohawk is generating positive cash flow while many competitors are bleeding cash.

The growth story is equally compelling: Over the last three years, Mohawk’s free cash flow has risen quarter over quarter about 82% of the time, compared with an average of less than 48% for its peers.

Yes, the housing market is still soft. Residential remodeling and new construction are sluggish, and Europe remains a challenge. But tariffs on imported flooring could flip into a growth driver – about 85% of the products Mohawk sells in the U.S. are made domestically, allowing it to benefit from price hikes while importers feel the squeeze.

For patient investors, the setup is compelling: a debt-light balance sheet, a cash machine of a business, active share buybacks, and the potential for margin expansion if tariffs lift pricing and input costs ease after the third quarter.

After peaking near $160 last summer, the stock slid sharply into early 2025. That sell-off coincided with a weak housing market and soft margins.

Since then, the stock has staged a solid recovery, climbing more than 30% off its spring lows, so some consolidation wouldn’t be surprising. But the rising trend since April, coupled with the improving fundamentals, suggests momentum is shifting in the bulls’ favor.

Ultimately, Mohawk isn’t flashy. At all. But in a market that often chases stories over substance, boring can be beautiful – especially when boring throws off this much cash.

The Value Meter gives Mohawk Industries a rare “Extremely Undervalued” rating.

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post The Most Undervalued Stock I’ve Seen All Year appeared first on Wealthy Retirement.

Looking at the results from 2024, I’m pleased to say it’s done exactly that – and then some. Let me show you what I mean with some hard numbers.

Stocks that scored below 3 on our Value Meter scale, suggesting they were undervalued, have gained an average of 4.3% in just 119 days. Stretch that out over a full year, and you’re looking at a projected 13.6% return. Not too shabby in today’s choppy market.

On the other hand, stocks that scored above 3 on our scale have dropped by an average of 11.8% in 114 days – a stunning 42.2% annualized loss.

Even more telling is that since we started including Value Meter scores last May, every single stock that’s fallen by 15% or more had a score above 3.6.

That’s not just correlation; that’s the kind of predictive power that can save investors from serious losses.

So what makes The Value Meter different from other stock rating systems? For one thing, it doesn’t get distracted by surface-level metrics like revenue or price-to-earnings ratio, which often lack context. Instead, it digs deeper into what really matters: how efficiently companies turn their assets into cold, hard cash.

Think of it like buying a house. You wouldn’t just look at the asking price, would you? Of course not. You’d check the condition of the roof, scope out the neighborhood, and research what similar homes have sold for recently. The Value Meter applies that same thorough approach to stocks.

The system zeros in on three crucial factors:

• Enterprise value: how much you’d have to pay to buy the whole company, including all of its outstanding shares
• Net asset value: what the company owns minus what it owes
• Free cash flow: how much cash the business generates from its operations.

By weaving these pieces together, we get a crystal-clear picture of whether a stock is truly cheap or expensive. And as the numbers above show, this approach has been remarkably good at spotting both bargains and danger zones.

But here’s what really sets The Value Meter apart: It doesn’t just find cheap stocks – it finds cheap stocks that are worth buying. Plenty of stocks look cheap, but The Value Meter helps separate the real bargains from the value traps thanks to its laserlike focus on cash generation.

Now, keep in mind that no investing tool is perfect. But in a market where hype often drowns out reality, having a reliable tool to measure true value is more important than ever – and The Value Meter is proving to be one of the sharpest tools we’ve got.

Looking ahead to 2025, I expect The Value Meter to keep doing what it does best: steer investors away from overvalued stocks while pointing them toward undervalued companies with rock-solid fundamentals.

Be excellent,

Anthony

P.S. What stocks would you like me to run through The Value Meter next? Post the ticker symbols in the comments section below.

The post The Value Meter: More Than Just Another Stock-Rating Tool appeared first on Wealthy Retirement.

But just as a Reese’s Peanut Butter Cup is more than its chocolate shell, there’s more to this story than the stock price suggests.

Let’s run the stock through The Value Meter to find out whether this pullback offers a sweet opportunity.

First, let’s look at Hershey’s enterprise value-to-net asset value (EV/NAV) ratio, which tells us how much investors are theoretically paying for the company’s assets. With an EV/NAV of 9.7, Hershey is over 50% more expensive than the average company.

Though that might raise eyebrows, focusing solely on this metric could cause us to miss the potential richness inside.

The real story here is Hershey’s remarkable ability to generate cash. The company has churned out positive free cash flow in each of the past four quarters. Its free cash flow averaged 10.1% of its net assets during this period, which is well above the 7.8% average among its peers.

This cash-generating prowess isn’t magic – it stems from Hershey’s dominant market position and pricing power.

Despite challenging conditions, Hershey’s free cash flow surged more than 90% to $567 million last quarter. The company also generated $3 billion in net sales (buoyed by 0.8% growth in its core North America Confectionery segment) and earned about $654 million in adjusted operating profits.

Now, Hershey does face some difficulties. Cocoa prices have surged to record highs, which has pressured input costs, and the company has also been forced to adapt its portfolio to evolving consumer preferences, particularly in “better-for-you” snacking.

However, Hershey brings several advantages to these challenges, having successfully navigated numerous commodity cycles during its 130-year history. The company’s recent expansion into salty snacks, highlighted by Dot’s Homestyle Pretzels’ 31% growth in the third quarter, reduces its reliance on chocolate. More importantly, Hershey’s brands command premium shelf space and pricing, helping maintain healthy 41.3% gross margins even in tough times.

When we weigh Hershey’s valuation against its superior cash generation, strong competitive position, and proven ability to manage difficult cycles, today’s price looks like a bargain. Much like finding a forgotten chocolate bar in your cupboard, patient investors may be in for an unexpected treat.

The Value Meter rates Hershey as “Slightly Undervalued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Hershey Stock: A Sweet Surprise… or a Melted Mess? appeared first on Wealthy Retirement.

Yet some of the world’s most successful investors swear by it.

It’s also one of the few investment strategies grounded in sheer common sense. The core of value investing is simple: Buy shares of a solid business for less than they’re really worth.

Not only does this minimize downside risk, but as the market eventually recognizes the company’s true value, patient investors can reap handsome rewards.

But just because it’s simple doesn’t mean it’s easy.

Successful value investing requires independent thinking, meticulous research, and the discipline to tune out the crowd. That’s why having a clear, objective framework is critical in identifying genuine bargains amid the market’s noise.

Since taking the helm of Wealthy Retirement‘s Value Meter column, I’ve sought to help readers better gauge whether stocks are overvalued or undervalued in a way that isn’t endlessly complicated.

The father of value investing, Ben Graham, believed financial analysis should be simple, requiring no more than basic arithmetic. While the system behind The Value Meter uses a tad bit more than arithmetic, it does aim to be simple. In fact, it’s based on only three key metrics.

The Value Meter Criteria

The first metric gets to the heart of what makes a good business: the ability to generate profits. But what’s the best measure of profitability?

Reported earnings can be misleading. Massive one-time gains, shifting accounting policies, and management trickery can all distort a company’s true profitability. That’s why most value investors insist on following the cash.

Free cash flow is the primary (but not only) measure of profitability I look at. It represents the cash a company generates after subtracting operating expenses and capital expenditures.

Steady cash flow is the lifeblood of any business because it allows the company to fuel growth, reduce debt, and reward shareholders.

After I determine a company’s free cash flow, I like to compare it with the company’s net asset value, or NAV − the difference between its assets and its liabilities. This allows me to assess how efficiently the company is using its resources to generate cash.

The higher the ratio of free cash flow to NAV, the better.

For example, let’s say Company ABC and Company DEF both have $10 billion in net assets, but Company ABC brings in $40 billion in free cash flow while Company DEF brings in just $20 billion. This means Company ABC is twice as efficient as Company DEF at turning its assets into cash.

Once I’ve calculated this ratio over each of the past four quarters, I’m able to see where the company ranks among the roughly 6,000 U.S. exchange-traded stocks in my database.

The third key metric is the hypothetical cost of acquiring the entire business, also known as its enterprise value, or EV. Unlike market cap, EV accounts for a company’s total acquisition cost, including both equity and debt.

Just as I do with free cash flow, I compare each company’s EV with its NAV. A low EV/NAV ratio suggests that you’re paying relatively little to acquire the company – a hallmark of an undervalued stock. So the lower the figure, the better.

Lastly, I score each company by averaging its ranking for each measurement and using basic statistical analysis to assign it a rating on a scale from 0 to 6.

Those scores correspond to five different categories: “Extremely Undervalued,” “Slightly Undervalued,” “Appropriately Valued,” “Slightly Overvalued,” and “Extremely Overvalued.”

At the bottom of each of my Value Meter columns, you’ll find all of this information compiled into a simple graphic. Here’s an example:

Overall, my Value Meter system favors companies that are producing high levels of cash relative to their net assets while trading at low EVs relative to their net assets. If a company ranks well in both categories, that indicates that it’s both more efficient and cheaper than its peers.

Now, admittedly, my system isn’t perfect.

It clearly prefers asset-heavy companies with ample free cash flows, which are typically mature companies rather than those in the early growth phase.

As a result, it tends to not give positive ratings to fast-growing businesses that are light on capital, some of which turn out to be phenomenal investments. Most growth-focused investors would consider that a huge flaw.

But for anyone seeking a straightforward way to identify potentially mispriced companies, The Value Meter offers a solid start. Its unwavering focus on cash generation and asset value can help investors stay grounded.

Value investing is not the only way to build wealth in the markets, but it has proved its merits over many decades. The Value Meter’s aim is to make this timeless strategy more accessible than ever.

If you have any questions about my Value Meter system (or if you have any stocks that you’d like me to run through The Value Meter), feel free to post them in the comments section below.

The post The Value Meter: Using Common Sense to Find Bargain Stocks appeared first on Wealthy Retirement.

While it’s primarily in the personal auto insurance business, Mercury also offers homeowners, commercial auto, and property insurance.

Insurance may not be the most exciting industry, but it’s good business. Mercury’s shareholders have enjoyed a serious rally over the past year, with the stock more than doubling from its late 2023 low.

Despite this huge surge, there are compelling reasons to believe this insurance heavyweight may still be trading at a good bargain.

First, let’s look at Mercury’s enterprise value-to-net asset value (EV/NAV) ratio. This key metric sits at a modest 2.06, compared with an average of 10.95 for companies with positive net assets. In other words, you’re getting a whole lot more bang for your buck with Mercury than you would with most of its peers.

Now let’s turn to cash flow. Mercury has consistently generated positive free cash flow for years, and its free cash flow has averaged 9.98% of its net assets over the past four quarters. The average for companies with four straight positive quarters is 7.97%, so Mercury is outperforming its peers in this crucial area.

The company’s latest quarterly results confirm that it’s making serious waves. Its total revenue collected in premiums surged 27.2% year over year to nearly $1.3 billion. That’s a big deal in the insurance world. It’s like a retailer reporting 27% sales growth.

And it’s not just the top line that’s looking good. The company’s combined ratio, a key measure of profitability for insurers, improved from 115.8% in the first quarter of 2023 to 100.9% in Q1 of this year. In insurance speak, that’s like going from losing money on every policy to breaking even. It’s a massive turnaround, and it shows that Mercury is getting its house in order.

Management isn’t resting on its laurels either. They’re actively working to improve profitability, having gotten rate increases approved in California for both their auto and homeowners insurance lines.

As these rate hikes take effect, we could see Mercury’s profitability shift into high gear.

But wait, there’s more! Mercury is also serving up a 3.2% dividend yield with a payout ratio of just 25.7% of its forward earnings. That impressively low payout ratio suggests that the dividend is very sustainable.

The bottom line? Mercury General is looking like a classic value play. It’s a solid company with improving fundamentals that is trading at a fraction of what it seems to be worth.

Of course, no investment is without risk. The insurance industry can be volatile, and there’s always the chance of unexpected catastrophes or regulatory changes. But thanks to Mercury’s low valuation, attractive dividend, and improving fundamentals, the potential reward seems to far outweigh the risks. In my book, this is shaping up to be a rare opportunity.

Mercury General is exactly the sort of overlooked, undervalued stock we’re aiming to identify. The Value Meter rates the stock “Slightly Undervalued,” with its score leaning more toward the “Extremely Undervalued” end of the spectrum.

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Mercury General: A Classic Value Play? appeared first on Wealthy Retirement.

A quick glance at the stock’s price chart should give you an idea of what I mean. Following a disparaging report against the company’s sales practices earlier this year, shares tumbled sharply, and they are still in the process of rebounding from their multi-year lows.

But despite the negative press, I think the stock deserves a serious look. Let’s run it through The Value Meter.

First, let’s look at Globe Life’s enterprise value-to-net asset value (EV/NAV) ratio, which gives us a sense of how the market is valuing the company’s assets relative to its peers’. Globe Life’s EV/NAV sits at 2.04, a significant discount to the market average of 6.56 for companies with positive net assets.

That’s not a bad discount. But is it truly a bargain?

The company’s ability to generate cash is crucial to answering that question, and Globe Life shows some strength in that regard.

Over the past four quarters, Globe Life’s free cash flow averaged 7.45% of its net assets. While this is slightly below the peer average of 8.04%, it’s not far off. More importantly, the company has churned out positive free cash flow in each of the last four quarters. That’s the kind of consistency value investors crave.

Globe Life’s first quarter results were quite solid. Net income rose 13.7% to over $254.2 million, up from $223.6 million a year ago. And net operating income hit $264.1 million, a 6.5% year-over-year increase.

The company also reported that the underwriting margin for its life insurance operations, which account for about 70% of its premium revenue, grew 6% year over year to $309 million in the first quarter. Underwriting margin for its health insurance segment, which makes up the other 30% of premium revenue, increased 3% to $93.8 million.

These numbers demonstrate Globe Life’s ability to profitably grow its core business.

But it’s not all rosy. The company is facing some headwinds.

A recent short-seller report and a Department of Justice inquiry into sales practices at its American Income Life division have put pressure on the stock.

Management has strongly refuted the short seller’s claims and is cooperating with the DOJ investigation. They’ve also hired an independent law firm to conduct a review of the allegations.

These issues create uncertainty, which the market hates. However, they also present an opportunity for investors who are willing to look past the short-term noise.

Globe Life’s business model has proven resilient over many decades. The company’s focus on serving middle-income Americans with basic protection life insurance and supplemental health products has consistently generated stable cash flows.

Moreover, Globe Life’s management seems confident in the company’s future. They’ve increased their 2024 earnings guidance to a range of $11.50 to $12.00 per share, representing about 10% growth at the midpoint. The company is also planning to repurchase $350 million to $370 million worth of shares this year, a sign that the insiders believe the stock is undervalued.

For patient investors willing to weather some potential volatility, Globe Life offers an interesting value proposition. The company’s strong market position in middle-income insurance, coupled with its consistent cash generation, provide a solid foundation. If Globe Life can navigate its current challenges and maintain its growth trajectory, today’s price could prove to be a bargain in hindsight.

The Value Meter rates this one “Slightly Undervalued.” However, the ongoing investigations and potential reputational damage warrant some caution.

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Globe Life: Tarnished Insurance Giant… or Undervalued Gem? appeared first on Wealthy Retirement.

Founded in 1987, Icahn Enterprises (Nasdaq: IEP) is majority-owned by billionaire investor Carl Icahn and his son, Brett Icahn. Shares of the company provide investors with exposure to Carl Icahn’s personal investment portfolio, which consists of public and private companies across a wide variety of industries – ranging from oil and gas to real estate.

Over the past several months, shares have fallen drastically, dropping as much as 65% from a 52-week high to a nearly 20-year low.

What was the catalyst for the collapse?

Last May, short seller Hindenburg Research released a scathing report on Icahn Enterprises. It claimed that the company was overleveraged, overvalued and paying out its fat dividends using money from new investors rather than its cash flows.

Naturally, the report scared investors, and it sent shares plummeting 20% the day it was published. A few months later, the company ended up slashing its dividend in half, pushing share prices down even further.

To add insult to injury, the company just announced a sharp decline in revenues in 2023 as well as an earnings loss, which is sure to discourage investors even more.

In short, the company’s shareholders have had a really tough year.

Icahn Enterprises’ revenues have tended to fluctuate over the past several years, and profitability (as measured by EBITDA, or earnings before interest, taxes, depreciation and amortization) has been inconsistent.

But the company’s free cash flows have been in a strong uptrend in recent years.

Free cash flows reached a whopping $3.4 billion in 2023, up 379% from $717 million in 2022 and up 21,356% from $16 million in 2021.

Among the more than 3,600 stocks scanned by my updated system – which I introduced in last week’s Value Meter – Icahn Enterprises falls between one and two standard deviations above the average. (Remember, the higher a stock’s ranking, the more undervalued it’s likely to be.)

The ratio of the company’s enterprise value to its net assets, or its EV/NAV ratio, is about 1.4. That means its acquisition cost is only 40% above its net asset value. (An EV/NAV ratio of 1.4 is about one-fourth of the average for all eligible stocks that were screened – that is, stocks with positive cash flows and net assets.)

Plus, Icahn Enterprises’ trailing 12-month free cash flow was an average of 32% of its net assets over the past two quarters, compared with an average of 26% among eligible companies. In other words, it generates more cash from its assets than most companies would.

Overall, the stock appears to have been beaten down too harshly.

Icahn Enterprises represents a very diverse investment portfolio with stakes in businesses across nearly every industry. While it’s not quite a high-flying growth stock, its sizable free cash flow growth in recent years shouldn’t be ignored – especially at today’s market prices.

The Value Meter rates shares of Icahn Enterprises as being “Slightly Undervalued.”

As always, if you have a stock that you’d like to have rated by The Value Meter, leave the ticker symbol in the comments section below.

The post Icahn Enterprises a Bargain Despite Recent Struggles? appeared first on Wealthy Retirement.