Buy Hold Sell: 5 stocks spewing out a hell of a lot of cash

Ally Selby: Its share price is up around 5% over the last 12 months. Ben, over to you. Is it a buy, hold or sell?

Ben Rundle (HOLD): I will agree with Nathan and say a hold. I think the management team have done a good job. The valuation is not extreme. I just don't have enough conviction to call it a buy. CBA, their largest customer, has put their contract essentially up for review. I don't think they miss out on that, but I guess it's a risk, and I don't really have confidence either way. So, I'll sit on the fence and call it a hold.

Nick Scali (ASX: NCK)

Ben Rundle (BUY): Nick Scali is a buy for me. They have a great opportunity to roll out their Plush business in Australia, and they've shown early signs of a lot of success in doing that. They also acquired a business in the UK called Fabb Furniture. And Fabb has a gross margin that's significantly below where Nick Scali is. So I think that once they get into that business, turn it into more of a Nick Scali-style business, get it bigger, get buying power, they'll get that gross margin up. It also has a low store footprint, so there's room for growth there too. So a good one to buy, I think.

Nathan Hughes (BUY): I agree, I think it's a buy as well for all those reasons. The beauty of the Nick Scali model is it's quite inventory-light. So when a customer purchases a couch, they pay a deposit and the balance on completion of the delivery, which is typically 12 weeks out, which means the company doesn't have to carry a lot of inventory. So the rollout of Plush here or Fabb in the UK is very capital-light, which means great cash generation for shareholders and dividends for us, but the company is still able to grow over the medium term.

Whitehaven Coal (ASX: WHC)

Nathan Hughes: I was going to say hold, but I changed my mind.

Nathan Hughes (BUY): Yeah, I think it's a buy. There's a company transforming acquisition that they did earlier in the year, but importantly, they didn't issue any equity to do that. They were able to use their balance sheet. They do have some deferred payments to make over the coming years, but the cash flow generation from the assets should be quite strong to enable them to do that. The stock's probably on a free cash flow yield of 20%, which makes it hard to go past.

Ben Rundle (BUY): I think it's a buy, too. The company did drown itself in cash through that period when the coal price did really well. As a result, as Nathan pointed out, they were able to make an acquisition without any equity dilution, essentially doubling the size of their business. There's a sell-down coming from the Blackwater asset, so more cash coming in the door, and I think they'll have the balance sheet back to a net cash position pretty shortly, so a buy for me.

Ben Rundle (BUY): I think Redox is a good opportunity. So they listed about 12 months ago, and because of an inventory unwind, they drowned themselves in cash, essentially, as part of that process. So they sat on about $180 million in cash at the result six months ago. I think at the coming result, that'll be even higher. It's a huge amount of cash for a very capital-light business. So I think if you subtract that cash from the market cap and put it on a valuation, I think it's on about a 15 times P/E. So for a company that has over 20% returns on capital, I think that's a pretty reasonable valuation to pay.

McMillan Shakespeare (ASX: MMS)

Nathan Hughes (BUY): My stock is McMillan Shakespeare - a salary packaging company primarily, but also with a business in NDIS plan management and a small commercial leasing business. This is another very capital-light business. The core salary packaging business virtually requires no capital and certainly no capital investment to grow. So they're able to generate a lot of free cash with that. A lot of that capital just comes straight back to us as shareholders.