Back to top

Image: Bigstock

Buy 4 Stocks With Rising Cash Flows to Enrich Your Portfolio

Read MoreHide Full Article

We are already into the second-quarter reporting cycle and stocks with top-line growth and increasing profit numbers might be popular choices. But choosing stocks based on a company’s efficiency in generating cash flows can be far more rewarding.

In this regard, stocks like StoneX Group Inc. (SNEX - Free Report) , Photronics, Inc. (PLAB - Free Report) , Franklin Covey Co. (FC - Free Report) and REX American Resources Corporation (REX - Free Report) are worth buying.

This is because even a profit-making company can have a dearth of cash flow and become bankrupt while meeting its obligations if its profits are not channelized in the right direction. But a company can effectively weather any market mayhem if it has a solid cash position as that lends a company the flexibility to make decisions, the means to invest and the fuel to run its growth engine. It is indeed the key to a company’s existence, development and success, and reveals a company’s true financial health.

Furthermore, with uncertainties in the global economy, market disruptions and dislocations, as well as liquidity concerns resulting from geopolitical tensions or the pandemic, analyzing a company’s cash-generating efficiency holds more relevance.

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, it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in the 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 industry categories.

Here are our four picks out of the 14 stocks that qualified the screening:

StoneX Group is a financial services organization that provides execution, risk management and advisory services, market intelligence, and clearing services across multiple asset classes and markets around the world.

The Zacks Consensus Estimate for StoneX Group’s fiscal 2022 earnings has been revised 6.12% upward to $8.45 in the past month. SNEX has a VGM Score of A.

Photronics is a leading worldwide manufacturer of photomasks. Photomasks are high-precision quartz plates that contain microscopic images of electronic circuits.

The Zacks Consensus Estimate of $1.90 per share for Photronics’ current-fiscal earnings has moved 41 cents north in the last 60 days. PLAB has a VGM Score of B.

Franklin Covey is an international learning and performance solutions company dedicated to increasing the effectiveness of individuals and organizations.

The Zacks Consensus Estimate for FC’s fiscal 2022 earnings has been revised upward by 34 cents to $1.21 per share in the last 30 days. FC has a VGM Score of B.

REX American Resources Corporation, formerly known as REX Stores Corporation, is engaged in the production and sale of ethanol and distillers grains. The company owns interests in corn- or sorghum-based ethanol production facilities in Illinois, Iowa and Texas.

The Zacks Consensus Estimate for REX American Resources’ fiscal 2023 earnings has been revised upward to $7.13 per share from $5.62 in the last 60 days. REX currently has a VGM Score of B.

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.

Published in