Investing in the stock market can feel like navigating a jungle – thrilling but sometimes overwhelming.
However, there's a trusty compass to help guide your way: strong cash flows. Companies with robust cash flows are like the steady heartbeats of the stock market, providing the lifeblood that fuels growth, innovation, and shareholder returns.
In this article, we'll introduce you to two ASX shares with impressive cash flows, making them prime candidates for your investment portfolio today.
Whether you're a seasoned investor or just starting, these cash flow champions are worth your attention. Let's dive in and explore my two ASX stock picks below.
Super Retail Group Ltd (ASX: SUL)
Super Retail is a prominent retailing group in Australia and New Zealand, specialising in automotive, sports, and outdoor leisure products. The company operates several well-known brands, including Supercheap Auto, Rebel, BCF, and Macpac.
Established in 1972, Super Retail has grown significantly, offering a diverse range of products to meet the needs of enthusiasts and professionals alike.
The retailer generated cash flow from operations of $756 million over the last 12 months to December 2023. From here, the company paid for its capital expenditure of $155 million, which increased from $110 million in FY23 used to expand its store network in Supercheap Auto and Rebel in the main.
This leaves the company with a free cash flow of approximately $600 million, sufficient to cover its lease payment obligations of around $220 million.
Compared to its current market capitalisation of close to $3 billion, Super Retail offers a free cash flow yield of more than 13% even after considering the lease payments.
Goldman Sachs also recognised this potential investment opportunity. As my colleague James highlighted, Goldman Sachs included Super Retail as one of its top dividend shares to buy. The broker said:
We believe SUL will display resilience in a softer economic environment that is built upon its competitive advantage of high loyalty (~11.0m active members accounting for >75% of sales) and this will be further bolstered as the company launches the Rebel loyalty program and continues to build personalisation capabilities. Hence, we are Buy-rated on SUL.
The Super Retail share price has fallen almost 23% from its all-time high of $17.11 in February 2024.
NIB Holdings Limited (ASX: NHF)
NIB is an Australian health insurer that provides health and medical insurance products to Australian and New Zealand residents, as well as international students and workers.
Founded in 1952, NIB has expanded its services to include travel and life insurance. The company focuses on providing affordable and comprehensive coverage, leveraging digital platforms to enhance customer experience and accessibility.
For the last 12 months to December 2023, NIB generated a cash flow from operations of $304.4 million, which has increased over the previous five years from $180 million in FY18.
The company explained that policyholder growth across its businesses underscored its strong operating cash inflow. NIB Thrive and Midnight Health are growing at a healthy rate, more than offsetting a sluggish result from NIB Travel.
From the operating cash flow, the company paid for property and other capital expenditures of around $50 million, leaving approximately $250 million as a free cash flow.
Based on NIB's current market price, its free cash flow represents around 7% of its current market capitalisation of $3.6 billion. This means that if you acquired the company as a whole today, it would generate about a 7% return in its cash flow, which isn't too bad, in my view.
Goldman Sachs sees further upside in the NIB share price due to NIB's policyholder growth, diversified earnings streams, and valuation appeal, as my colleague Zach summarised.
The NIB share price has dropped 14% over the last 12 months and is down just 0.4% year to date.
