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Look Beyond Profit, Buy These 4 Stocks With Increasing Cash Flows

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If achieving profit is a company’s goal then having a healthy cash flow is the most essential for its existence, development and success. Cash offers the company flexibility to make decisions, the means to make investments, the fuel to run its growth engine, and can, indeed, be called the lifeblood of any business.

Often investors flock to companies with solid top-line growth and increasing profit numbers. However, even a profit-making company can have a dearth of cash flow and face bankruptcy while meeting its obligations. Therefore, to invest in the right stocks, one must go beyond profit numbers and look at a company’s efficiency in generating cash flows because cash not only guards it from market mayhem, but also suggests that profits are being channelized in the right direction. In fact, cash indicates a company’s true financial health.

This holds more relevance in today’s world as the coronavirus pandemic has resulted in 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 the 12 stocks that qualified the screening:

Marubeni Corp. (MARUY - Free Report) : Tokyo, Japan-based Marubeni Corporation purchases, distributes, and markets various industrial and consumer goods worldwide. It imports, exports and trades within the Japanese market in food, textiles, materials, pulp and paper, chemicals, energy, metals and mineral resources and transportation machinery. It is also engaged in power projects and infrastructure, plants and industrial machinery, real estate development and construction, finance, logistics and information industries. The stock currently flaunts a VGM Score of A. The Zacks Consensus Estimate for earnings of the fiscal year ending March 2022 moved 13.2% north in a month’s time.

Orient Overseas International Ltd. (OROVY - Free Report) : This Wanchai, Hong Kong-based company, through its subsidiaries, primarily offers container transport and logistics services, ports and terminals, and property investment. It also provides freight management services, extensive domestic distribution services and supply-chain management. The stock currently sports a VGM Score of A. The Zacks Consensus Estimate for 2021 earnings has moved up 1.5% over the past week.

Citi Trends, Inc. (CTRN - Free Report) is a value-priced retailer of urban fashion apparel and accessories for the entire family. The stock currently carries a VGM Score of A. The Zacks Consensus Estimate for fiscal 2022 earnings has moved 30% north to $6.50 in the past week.

Veritiv Corporation (VRTV - Free Report) : This company engages in offering North American business-to-business distribution solutions. It provides packaging, print and print management, publishing, supply chain, facility and logistics solutions that span the entire lifecycle of core business operations. Currently, the stock carries a VGM Score of B. The Zacks Consensus Estimate for current-year earnings has moved up 45.6% to $6.55 in the past month.

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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.