An old joke has a chief executive asking his accountant how much the company earned in the latest quarter. “How much did you want it to be?” the accountant replies.

There's always a bit of judgment that goes into financial figures. I'm a fan of GAAP earnings – profits measured by generally accepted accounting principles. But some investment professionals think cash flow is a truer measure.

Cash flow tries to measure the actual money going into a corporation and coming out. It disregards interest, taxes, depreciation and amortization because these may not involve current cash inflows or outlays.

In picking stocks, cash-flow fans focus on the stock's price divided by the company's cash flow per share. Once a year, I single out a few stocks that look good to me on that measure. Here are five that look appealing now.

Capital One

Take a bank, put it in a space that looks more like a coffee shop and you have the basic idea of Capital One Financial Corp. (COF, Financial). Its slogan is “What's in your wallet?” True to the slogan, it does a large business in credit cards.

Over the past 10 years, Capital One has increased profits at a 10% annual clip. Last year was tough, with profits up only 1.50%. But I think the next couple of years will be easier now that the Federal Reserve seems ready to reduce short-term interest rates.

Capital One shares sell for only 2.30 times operating cash flow, a very low ratio. (Here, lower is better.)

RPC

Disliked on Wall Street is RPC Inc. (RES, Financial) of Atlanta. It provides oilfield services such as pressure pumping and well control. Profits have been erratic, with six profitable years and four unprofitable ones in the past decade.

Why would I like such an erratic earner? I think drilling activity over the next five years will be busier than many people think. And RPC's balance sheet is a thing of beauty, with debt equal to only 3% of stockholders' equity (corporate net worth). The stock trades for 6.80 times operating cash flow.

Tutor Perini

Based in Sylmar, California, Tutor Perini Corp. (TPC, Financial) is an engineering and construction company. It builds everything from casinos to bridges to airline terminals.

Right now, it is benefitting from increased federal spending on infrastructure. After a decade of slowly declining revenue, it saw sales perk up 11% in the past year. Of nine analysts who cover the stock, seven like it.

Tutor Perini shares go for a mere 2.80 times operating cash flow and only 0.25 times the company's revenue per share.

Cleveland-Cliffs

Cleveland-Cliffs Inc. (CLF, Financial) gets about two-thirds of its revenue by making flat-rolled steel, and about one-third by mining iron ore. Its stock has been flattened this year as the steel industry has slowed down. Analysts expect the company to report a small loss for 2024.

I think that investors have punished this stock a little too harshly. The company is expected to be profitable again in 2025 and 2026. The stock, at $12 to $13 per share, fetches only 3 times operating cash flow.

International Seaways

Revenue and earnings fell in the past year at International Seaways Inc. (INSW, Financial). Houthi militants are firing on ships passing through the Suez Canal, forcing ships to go around Cape Horn instead – a longer and costlier trip.

At the same time, drought is disrupting operations in the Panama Canal. All this is unpleasant for International Seaways, which operates 82 ships carrying oil and other cargo. Buying stocks on bad news that is real but temporary is one of my favorite investment techniques.

The stock trades for about 4.20 times operating cash flow.

Performance record

Since 1999, I've written 20 columns about stocks with low price-to-cash flow ratios. (Today's is the 21st.) The average one-year return on my selection in this series has been 13.80%, compared to 10.40% for the Standard & Poor's 500 (dividends included).

Bear in mind that my column results are hypothetical and shouldn't be confused with results I obtain for clients. Also, past performance doesn't predict the future.

My picks have been profitable 14 times out of 20, but have beaten the S&P 500 only half the time.

Last year the index thrashed me. It surged 28.10% while my choices rose only 11.50%. Cal-Maine Foods Inc. (CALM, Financial) did very well, but I had only modest gains in BlueLinx Holdings Inc. (BXC, Financial) and Peabody Energy Corp. (BTU, Financial). I had losses on Andersons Inc. (ANDE, Financial) and Berry Corp. (BRY, Financial).

John Dorfman is chairman of Dorfman Value Investments in Boston. He can be reached at [email protected]. He or his clients may own or trade stocks discussed in this column.