Investing one’s hard-earned money in stocks with high profits and impressive earnings surprise records is a trend during the final leg of a reporting cycle. However, rather than brooding too much on profit numbers, strategically judging a company’s resiliency by assessing its efficacy in generating cash flows can be far more rewarding.
This is because cash indicates a company’s true financial health. It offers the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. In fact, even a profit-generating company might face bankruptcy while meeting obligations, if it is low on cash flow. However, a sturdy cash balance can cushion these firms in case of any market turbulence.
Particularly, analyzing a company’s cash-generating efficiency holds more relevance in the current context as the coronavirus pandemic is giving rise to uncertainties in the global economy, market disruptions and dislocations, and liquidity concerns.
To figure out this efficiency, one needs to consider a company’s net cash flow. While in any business cash moves in and out, it is net cash flow that explains how much money a company is actually generating.
If a company is experiencing a positive cash flow then it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in business, endure downturns and finally return wealth to shareholders. On the other hand, a negative cash flow indicates a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
However, having a positive cash flow merely does not secure a company’s future growth. To ride on the growth curve, a company must have its cash flow increasing because that indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running its business.
Therefore, keep yourself abreast with the following screen to bet on stocks with rising cash flows.
Screening Parameters:
To find stocks that have seen increasing cash flow over time, we ran the screen for those whose
cash flow in the latest reported quarter was at least equal to or greater than the 5-year average cash flow per common share
. This implies a positive trend and increasing cash over a period of time.
In addition to this we chose:
Zacks Rank 1:
No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Average Broker Rating 1:
This indicates that brokers are also highly hopeful about the company’s future performance.
Current Price greater than or equal to $5:
This sieves out low-priced stocks.
VGM Score
of B or better:
This score is also of great assistance in selecting stocks. Importantly, this scoring system helps in picking winning stocks in their individual industry categories.
Here are the four out of nine stocks that qualified the screening:
Delta Apparel, Inc.
DLA
, headquartered in Greenville, SC, is an international design, manufacturing, sourcing and marketing company having a portfolio of core activewear and lifestyle apparel products. The company has a VGM Score of A. The stock has witnessed positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2020 and 2021 earnings per share moving upward to 85 cents from 40 cents and $1.44 from $1.03, respectively, in a month’s time.
Matson Inc.
MATX
provides ocean transportation and logistics services. It offers shipping services in Hawaii, Guam, and Micronesia islands and expedited service from China to southern California. At present, the stock has a VGM Score of A. The Zacks Consensus Estimate of $3.00 for 2020 earnings moved 11.5% north over the past 30 days.
Turtle Beach Corporation
HEAR
is an audio technology company and has emerged as one of the world’s leading gaming audio and accessory provider. The stock currently has a VGM Score of A. The Zacks Consensus Estimate for ongoing-year earnings has been revised 53.4% upward in the past 30 days.
Polymetal International plc.
AUCOY
is a metal producer primarily in Russia, Kazakhstan, and Armenia. It principally explores gold and silver. Polymetal International plc is headquartered in Saint Petersburg, the Russia Federation. The stock currently has a VGM Score of B. The Zacks Consensus Estimate of $2.45 for 2020 earnings has moved 1.7% north in the past month.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
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.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at:
https://www.zacks.com/performance
.
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