A favorite tool of value investors, the price-to-cash-flow is a gauge of the market's beliefs in a company's future financial health. Uses as an indicator of relative value, the price-to-cash-flow ratio is arrived at by dividing the current share price by cash flow per share.

Indeed, stocks with low price-to-cash-flow ratios mean that cash flow is robust relative to the share price and these "stocks having a low ratio outperform those with a high price to cash flow ratio 78% of the time," according to Thomas Bulkowski.

As is the case with other valuation metrics, high and low price-to-cash-flow ratios are not indigenous to just one or two sectors. However, some industry groups are currently home to an impressive number of low price-to-cash-flow stocks, indicating that ETFs can be a useful tool for investors looking to exploit this valuation metric.

Vanguard Information Technology ETF (NYSE: VGT) Not only is VGT now the technology ETF with the lowest expense ratio at just 0.14 percent per year, the fund is home to fair amount of low price-to-cash-flow stocks.

A screen for mega-cap names low price/free cash flow ratios turned up just three names, but two of those were Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT), which combine for 24.3 percent of VGT's weight.

Other VGT holdings that fit the bill as low P/FCF names include Broadcom (NASDAQ: BRCM), Symantec (NASDAQ: SYMC), Cisco (NASDAQ: CSCO), Dell (NASDAQ: DELL), Hewlett Packard (NYSE: HPQ) and Western Digital (NYSE: WDC). That is not the entire list of low P/FCF VGT constituents and that tells investors this ETF has ample exposure to companies that should be financially durable going forward.

iShares Dow Jones U.S. Healthcare Providers Index Fund (NYSE: IHF) For the purposes of the screen used to find low price-to-cash-flow stocks, "low" was considered to be a ratio of 15 or lower. A fair amount of health insurance providers popped up. That underscores the notion that low P/FCF stocks outperform. Over the past year, iShares Dow Jones U.S. Healthcare Providers Index Fund, an ETF often overlooked in the health care sector ETF conversation, has gained more than 19 percent.

Dow component and IHF's largest holding UnitedHealth (NYSE: UNH), IHF's largest holding, and WellPoint (NYSE: WLP), the ETF's third-largest holding, both popped up in the screen. Those two names combine for over 19 percent of the IHF's weight.

Also appearing in the screen were Express Scripts (NASDAQ: ESRX), Cigna (NYSE: CIG), Aetna (NYSE: AET) and Humana (NYSE: HUM). That quartet combines for over 27 percent of IHF's weight.

SPDR S&P Insurance ETF (NYSE: KIE) Health insurance firms are typically viewed as a sub-industry of the health care sector, but even with that, there are plenty of financial services and bank stocks that currently trade with low P/FCF ratios. Excluding the traditional banking names, which include PNC Financial (NYSE: PNC), US Bancorp (NYSE: USB) and Wells Fargo (NYSE: WFC), we opted for less volatile insurance providers.

By that metric, the SPDR S&P Insurance ETF has a beta of 0.99 against the S&P 500, according to State Street data. That compares favorably with a beta of 1.23 on the Financial Select Sector SPDR (NYSE: XLF).

KIE is nearly an equal-weight ETF and its largest holding receives a weight of just 2.83 percent. However, plenty of the ETF's 46 holdings appeared on our large-cap screen for low P/FCF stocks. That list includes Ace (NYSE: ACE), Chubb (NYSE: CB), Aflac (NYSE: AFL), Hartford Financial (NYSE: HIG), MetLife (NYSE: MET), Prudential Financial (NYSE: PRU) and Dow component Travelers (NYSE: TRV). The result is KIE has surged nearly 29 percent in the past year.

Related Articles
  1. Markets

    How To Use Price-To-Sales Ratios To Value Stocks

    Take a look at how this effective ratio can be influenced by certain critical factors.
  2. Fundamental Analysis

    Analyzing The Price-To-Cash-Flow Ratio

    Find out how this ratio can help you evaluate companies and make investment decisions.
  3. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  4. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  5. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  8. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  9. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  10. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!