Cash flow is a great valuation metric to look at when calculating how solid a company may be, said Lee Eugene Munson, CIO of Portfolio Asset Management, and Michael Farr, president of Farr, Miller & Washington. They each shared their best 5 stock picks with investors.
AT&T—"[AT&T] has some secular growth coming from the smartphones – especially the iPhone," Munson told CNBC.
"Telecoms have been poor performers because they have a lot of capital expenditures so cash flow is twice as important plus you need that cash flow to pay that 5 percent dividend."
Unilever—"They’ve had a great increase in their growth of cash flow versus 2007 because of restructuring, food is going to remain important," he said.
BP—"It has roughly the same cash flow as ExxonMobil, but has half the market cap and twice the dividend."
Caterpillar—"It’s a play on China and construction. If you compare it with John Deere, the cash flow is like night and day."
Time Warner—This is a stock that investors should put on their watch list, said Munson. "It’s a company that’s cheap compared to its cash flow, but we’re really waiting to see if management is going to be able to break up that company a little bit, and add some value."
Munson does not own shares of CAT, TWX or UL.