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Create a Standout Portfolio With These 4 Low P/CF Stocks
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The year 2022 is turning out to be a challenging one for the stock market that has left investors scrambling for safe-haven investment options. The escalating conflict between Russia and Ukraine has been largely unnerving the market of late. Not to deny, rising inflation and supply-chain bottlenecks have also been impeding the economic recovery. Meanwhile, the Federal Reserve’s aggressive stance to tighten monetary policy to tame inflation has compelled investors to fasten their seat belt. Given the current scenario, this calls for a prudent investment strategy, as it will be difficult to generate the kind of return registered last year.
Therefore, it is time to focus on good investment opportunities. So, as investors rebalance their portfolios, market pundits are placing their bets on value stocks. Value style is considered one of the best practices when it comes to picking stocks. Value investing is essentially about selecting stocks that are fundamentally sound but have been beaten down by some external factors, such as the pandemic. Such stocks are poised to bounce back as and when investors recognize the inherent value of companies. Certainly, the value investment strategy best suits investors with a long-term horizon.
There are different valuation metrics to determine a stock’s inherent strength. Still, a random selection of a ratio cannot serve your purpose if you want a realistic assessment of a company’s financial position. For this, we would suggest the Price to Cash Flow (or P/CF) ratio as one of the key metrics.
This metric evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per-share basis – the lower the number, the better. One of the important factors that make P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company's financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. Net cash flow unveils how much money a company is actually generating and how effectively management is deploying the same.
Positive cash flow indicates an increase in a company’s liquid assets. It gives the company the means to settle debt, meet its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
However, solely based on the P/CF metric, an investment decision may not fetch the desired results. To identify stocks trading at a discount, you should expand your search criteria and consider price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.
The Bargain Hunting Strategy
Here are the parameters for selecting true value stocks:
P/CF less than or equal to X-Industry Median.
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to its peers.
P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio the more attractive the stock is.
PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. PEG ratio gives a more complete picture than P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospect.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with Zacks Rank #1 or 2 offer the best upside potential.
Here are four of the 21 stocks that qualified the screening:
ArcBest Corporation (ARCB - Free Report) , a leader in supply-chain logistics, flaunts a Zacks Rank #1. It has an expected EPS growth rate of 37.8% for three-five years. ArcBest has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ArcBest's current financial-year sales and earnings per share (EPS) suggests growth of 24% and 22.4%, respectively, from the year-ago period. ARCB has a Value Score of A. The stock has risen 8.6% in the past year.
Celestica Inc. (CLS - Free Report) , a leader in design, manufacturing and supply-chain solutions for the world's most innovative companies, sports a Zacks Rank #1. It has an expected EPS growth rate of 14.5% for three-five years. The company has a trailing four-quarter earnings surprise of 10.9%, on average.
The Zacks Consensus Estimate for Celestica's current financial-year sales and EPS suggests growth of 12.6% and 23.9%, respectively, from the year-ago period. CLS has a Value Score of A. The stock has zoomed 24.4% in the past year.
KB Home (KBH - Free Report) , one of the largest and most recognized homebuilders in the United States, carries a Zacks Rank #1. It has an expected EPS growth rate of 17.1% for three-five years. The company has a trailing four-quarter earnings surprise of 11%, on average.
The Zacks Consensus Estimate for KB Home's current financial-year sales and EPS suggests growth of 30.1% and 67.9%, respectively, from the year-ago period. KBH has a Value Score of A. The stock has fallen 13.9% in the past year.
Signet Jewelers Limited (SIG - Free Report) , the world's largest retailer of diamond jewelry, flaunts a Zacks Rank #1. It has an expected EPS growth rate of 8% for three-five years. The company has a trailing four-quarter earnings surprise of 77.2%, on average.
The Zacks Consensus Estimate for Signet's current financial-year sales and EPS suggests growth of 48.9% and 475.8%, respectively, from the year-ago period. SIG has a Value Score of A. The stock has jumped 9% in the past year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
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.
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Create a Standout Portfolio With These 4 Low P/CF Stocks
The year 2022 is turning out to be a challenging one for the stock market that has left investors scrambling for safe-haven investment options. The escalating conflict between Russia and Ukraine has been largely unnerving the market of late. Not to deny, rising inflation and supply-chain bottlenecks have also been impeding the economic recovery. Meanwhile, the Federal Reserve’s aggressive stance to tighten monetary policy to tame inflation has compelled investors to fasten their seat belt. Given the current scenario, this calls for a prudent investment strategy, as it will be difficult to generate the kind of return registered last year.
Therefore, it is time to focus on good investment opportunities. So, as investors rebalance their portfolios, market pundits are placing their bets on value stocks. Value style is considered one of the best practices when it comes to picking stocks. Value investing is essentially about selecting stocks that are fundamentally sound but have been beaten down by some external factors, such as the pandemic. Such stocks are poised to bounce back as and when investors recognize the inherent value of companies. Certainly, the value investment strategy best suits investors with a long-term horizon.
There are different valuation metrics to determine a stock’s inherent strength. Still, a random selection of a ratio cannot serve your purpose if you want a realistic assessment of a company’s financial position. For this, we would suggest the Price to Cash Flow (or P/CF) ratio as one of the key metrics.
This metric evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per-share basis – the lower the number, the better. One of the important factors that make P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company's financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. Net cash flow unveils how much money a company is actually generating and how effectively management is deploying the same.
Positive cash flow indicates an increase in a company’s liquid assets. It gives the company the means to settle debt, meet its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
However, solely based on the P/CF metric, an investment decision may not fetch the desired results. To identify stocks trading at a discount, you should expand your search criteria and consider price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chance of falling into a value trap.
The Bargain Hunting Strategy
Here are the parameters for selecting true value stocks:
P/CF less than or equal to X-Industry Median.
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to its peers.
P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio the more attractive the stock is.
PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. PEG ratio gives a more complete picture than P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospect.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with Zacks Rank #1 or 2 offer the best upside potential.
Here are four of the 21 stocks that qualified the screening:
ArcBest Corporation (ARCB - Free Report) , a leader in supply-chain logistics, flaunts a Zacks Rank #1. It has an expected EPS growth rate of 37.8% for three-five years. ArcBest has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ArcBest's current financial-year sales and earnings per share (EPS) suggests growth of 24% and 22.4%, respectively, from the year-ago period. ARCB has a Value Score of A. The stock has risen 8.6% in the past year.
Celestica Inc. (CLS - Free Report) , a leader in design, manufacturing and supply-chain solutions for the world's most innovative companies, sports a Zacks Rank #1. It has an expected EPS growth rate of 14.5% for three-five years. The company has a trailing four-quarter earnings surprise of 10.9%, on average.
The Zacks Consensus Estimate for Celestica's current financial-year sales and EPS suggests growth of 12.6% and 23.9%, respectively, from the year-ago period. CLS has a Value Score of A. The stock has zoomed 24.4% in the past year.
KB Home (KBH - Free Report) , one of the largest and most recognized homebuilders in the United States, carries a Zacks Rank #1. It has an expected EPS growth rate of 17.1% for three-five years. The company has a trailing four-quarter earnings surprise of 11%, on average.
The Zacks Consensus Estimate for KB Home's current financial-year sales and EPS suggests growth of 30.1% and 67.9%, respectively, from the year-ago period. KBH has a Value Score of A. The stock has fallen 13.9% in the past year.
Signet Jewelers Limited (SIG - Free Report) , the world's largest retailer of diamond jewelry, flaunts a Zacks Rank #1. It has an expected EPS growth rate of 8% for three-five years. The company has a trailing four-quarter earnings surprise of 77.2%, on average.
The Zacks Consensus Estimate for Signet's current financial-year sales and EPS suggests growth of 48.9% and 475.8%, respectively, from the year-ago period. SIG has a Value Score of A. The stock has jumped 9% in the past year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
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.