The NC 2000’s trailing free cash flow (FCF) remains high, relative to recent quarters, because stock prices are declining more than FCF. We think the market is signaling expectations for further declines in FCF, and we expect prices will continue to fall until the end of FCF declines is in sight.
This report is an abridged and free version of All Cap Index & Sectors: Free Cash Flow Yield Near Record Highs Through 5/16/22, one of our quarterly reports on fundamental market and sector trends.
The full version of this report analyzes, free cash flow, enterprise value, and the trailing FCF yield for the NC 2000 and each of its sectors (last quarter’s analysis is here). These reports are available to clients with a Pro or higher membership or can be purchased here.
NC 2000 Trailing FCF Yield Rises Over the Last Year
The trailing FCF yield for the NC 2000 rose from 1.2% as of 6/30/21 to 1.7% as of 5/16/22. The FCF yield for the NC 2000 has been this high only two other times since 2015: 6/30/16 and 12/31/18.
See Figure 1 in the full version of our report for the chart of FCF Yield for the NC 2000 from December 1998 through 5/16/22.
Eight NC 2000 sectors saw an increase in trailing FCF yield from 6/30/21 to 5/16/22,
Key Details on Select NC 2000 Sectors
With a 4.2% FCF Yield, investors are getting more FCF for their investment dollar in the Basic Materials sector than any other sector as of 5/16/22. On the flip side, the Industrials sector, at -0.9%, currently has the lowest trailing FCF yield of all NC 2000 sectors.
The Telecom Services, Energy, Utilities, Financials, Real Estate, Healthcare, Consumer Non-cyclicals, and Basic Materials sectors each saw an increase in trailing FCF yield from 6/30/21 to 5/16/22.
Below, we highlight the Energy sector’s trailing FCF yield.
The full version provides the same details for every sector as this report does for the Energy Sector.
Sample Sector Analysis: Energy
Figure 1 shows trailing FCF yield for the Energy sector rose from 0.7% as of 6/30/21 to 4.0% as of 5/16/22. The Energy sector FCF rose from $16.8 billion in 1Q21 to $123.2 billion in 1Q22, while enterprise value increased from $2.3 trillion as of 6/30/21 to $3.1 trillion as of 5/16/22.
Figure 1: Energy Trailing FCF Yield: Dec 1998 – 5/16/22
Sources: New Constructs, LLC and company filings.
The May 16, 2022 measurement period uses price data as of that date and incorporates the financial data from 1Q22 10-Qs, as this is the earliest date for which all the 1Q22 10-Qs for the NC 2000 constituents were available.
This article originally published on June 2, 2022.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
 We calculate these metrics based on S&P Global’s (SPGI) methodology, which sums the individual NC 2000 constituent values for free cash flow and enterprise value before using them to calculate the metrics. We call this the “Aggregate” methodology.
 Our research is based on the latest audited financial data, which is the 1Q22 10-Q in most cases. Price data is as of 5/16/22.
 Our research utilizes our Core Earnings, a more reliable measure of profits, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan and published in The Journal of Financial Economics.
Disclosure: New Constructs
David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.
About New Constructs
New Constructs leverages cutting-edge Robo-Analyst technology to provide insights and diligence on stocks, ETFs, mutual funds & debt issuers. Highly-respected public and private institutions believe in our concepts::
– Fundamental data and earnings: Core Earnings: New Data and Evidence
– Models for NOPAT, Invested Capital and Return on Invested Capital (ROIC): Getting ROIC Right
– Stock ratings: Robot Analysts Outwit Humans on Investment Picks
The information and opinions presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or solicitation of an offer to buy or sell securities or other financial instruments. New Constructs has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor and nothing in this report constitutes investment, legal, accounting or tax advice. This report includes general information that does not take into account your individual circumstance, financial situation or needs, nor does it represent a personal recommendation to you. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about any such investments or investment services.
Information and opinions presented in this report have been obtained or derived from sources believed by New Constructs to be reliable, but New Constructs makes no representation as to their accuracy, authority, usefulness, reliability, timeliness or completeness. New Constructs accepts no liability for loss arising from the use of the information presented in this report, and New Constructs makes no warranty as to results that may be obtained from the information presented in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information and opinions contained in this report reflect a judgment at its original date of publication by New Constructs and are subject to change without notice. New Constructs may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and New Constructs is under no obligation to insure that such other reports are brought to the attention of any recipient of this report.
New Constructs’ reports are intended for distribution to its professional and institutional investor customers. Recipients who are not professionals or institutional investor customers of New Constructs should seek the advice of their independent financial advisor prior to making any investment decision or for any necessary explanation of its contents.
In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a “Buy” rating, Very Unattractive and Unattractive correspond to a “Sell” rating, while Neutral corresponds to a “Hold” rating.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from New Constructs and is being posted with its permission. The views expressed in this material are solely those of the author and/or New Constructs and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.