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Look Beyond Profit, Pick These 4 Stocks With Rising Cash Flows
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We are in the heart of the current reporting cycle, and crunching profit numbers and evaluating surprises might appear to be a good option to investors. However, looking beyond profits and evaluating a company’s cash position can be far more rewarding. This is because, even though profit is a company’s goal, cash is its lifeblood for existence and is a measure of resiliency.
In fact, a dearth of cash flow can compel even a profit-making company to face bankruptcy while meeting its obligations. However, a healthy cash position indicates that profits are being efficiently channelized to the company’s reserves, which not only shield it from market mayhem but also offer the flexibility to make decisions, chase potential investments and fuel its growth engine.
Moreover, with the coronavirus pandemic causing a bloodbath in the global economy, and the resultant market disruption and dislocations being unprecedented with significant impact on liquidity, investing in stocks based on their cash-flow generating efficiency looks all the more prudent.
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 four of the eight stocks that qualified the screening:
Smurfit Kappa Group Plc (SMFKY - Free Report) : This Dublin, Ireland-based company operates as a paper and paperboard manufacturer and converter. It also engages in the manufacturing, distribution and selling of containerboard, corrugated containers and other paper-based packaging products, such as solid board, graphic board and bag-in-box. The stock has a VGM Score of A. The Zacks Consensus Estimate for 2020 earnings has moved up 6.9% over the past 60 days.
Turning Point Brands, Inc. (TPB - Free Report) provides tobacco products. The company's product consists of moist snuff, loose leaf chewing tobacco, cigarette papers, make-your-own cigar wraps and cigar smoking tobacco, cigars and liquid and tobacco vapor. At present, the stock has a VGM Score of B. The Zacks Consensus Estimate of $2.10 for the current-year earnings moved 11.1% north over the past month.
Herbalife Nutrition Ltd. (HLF - Free Report) : Headquartered in Los Angeles, CA, Herbalife develops and distributes healthy nutrition solutions for consumers. The company has a VGM Score of B as well as a decent earnings surprise history having surpassed estimates in three of the last four quarters, the earnings surprise being 22%, on average. Moreover, the Zacks Consensus Estimate of $3.40 for the ongoing year’s earnings has been revised 19.3% upward over the past week.
Nautilus Inc. is a fitness solutions company, which designs, develops, sources, and markets cardio and strength fitness products, and related accessories for consumer and commercial use globally. The stock has a VGM Score of B. The Zacks Consensus Estimate for this year has moved north in a month’s time.
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.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
Image: Bigstock
Look Beyond Profit, Pick These 4 Stocks With Rising Cash Flows
We are in the heart of the current reporting cycle, and crunching profit numbers and evaluating surprises might appear to be a good option to investors. However, looking beyond profits and evaluating a company’s cash position can be far more rewarding. This is because, even though profit is a company’s goal, cash is its lifeblood for existence and is a measure of resiliency.
In fact, a dearth of cash flow can compel even a profit-making company to face bankruptcy while meeting its obligations. However, a healthy cash position indicates that profits are being efficiently channelized to the company’s reserves, which not only shield it from market mayhem but also offer the flexibility to make decisions, chase potential investments and fuel its growth engine.
Moreover, with the coronavirus pandemic causing a bloodbath in the global economy, and the resultant market disruption and dislocations being unprecedented with significant impact on liquidity, investing in stocks based on their cash-flow generating efficiency looks all the more prudent.
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 four of the eight stocks that qualified the screening:
Smurfit Kappa Group Plc (SMFKY - Free Report) : This Dublin, Ireland-based company operates as a paper and paperboard manufacturer and converter. It also engages in the manufacturing, distribution and selling of containerboard, corrugated containers and other paper-based packaging products, such as solid board, graphic board and bag-in-box. The stock has a VGM Score of A. The Zacks Consensus Estimate for 2020 earnings has moved up 6.9% over the past 60 days.
Turning Point Brands, Inc. (TPB - Free Report) provides tobacco products. The company's product consists of moist snuff, loose leaf chewing tobacco, cigarette papers, make-your-own cigar wraps and cigar smoking tobacco, cigars and liquid and tobacco vapor. At present, the stock has a VGM Score of B. The Zacks Consensus Estimate of $2.10 for the current-year earnings moved 11.1% north over the past month.
Herbalife Nutrition Ltd. (HLF - Free Report) : Headquartered in Los Angeles, CA, Herbalife develops and distributes healthy nutrition solutions for consumers. The company has a VGM Score of B as well as a decent earnings surprise history having surpassed estimates in three of the last four quarters, the earnings surprise being 22%, on average. Moreover, the Zacks Consensus Estimate of $3.40 for the ongoing year’s earnings has been revised 19.3% upward over the past week.
Nautilus Inc. is a fitness solutions company, which designs, develops, sources, and markets cardio and strength fitness products, and related accessories for consumer and commercial use globally. The stock has a VGM Score of B. The Zacks Consensus Estimate for this year has moved north in a month’s time.
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.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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.