Back to top

Image: Bigstock

Buy These 4 Stocks With Rising Cash Flows Ahead of Q3 Earnings

Read MoreHide Full Article

Crunching profit numbers and evaluating surprises might be a preferred method for scooping up big gains in the impending Q3 earnings season. However, looking beyond profits and assessing a company’s cash position can be far more rewarding because it indicates a firm’s true financial health.

In this regard, stocks like Marubeni Corporation (MARUY - Free Report) , SP Plus Corporation (SP - Free Report) , RCM Technologies, Inc. (RCMT - Free Report) and Euroseas Ltd. (ESEA - Free Report) are worth buying.

Even a profitable business can fail if its cash flow is uneven and eventually file for bankruptcy. A company with a healthy cash position has the capability to effectively tide over any market mayhem and still be on its growth curve, besides enjoying the flexibility to make decisions, chase potential investments and run its growth engine.

In fact, analyzing a company’s cash-generating efficiency has indeed become more relevant in the current context amid uncertainties in the global economy, market disruptions and dislocations, as well as liquidity concerns resulting from geopolitical tensions or the pandemic.

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 16 stocks that qualified the screening:

Marubeni, based in Tokyo, Japan, 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 Zacks Consensus Estimate for Marubeni’s earnings for the fiscal year ending March 2023 has moved 35.6% north in the past two months. MARUY currently has a VGM Score of B.

SP Plus provides professional parking, ground transportation, facility maintenance, security and event logistics services to property owners and managers in all markets of the real estate industry.  

The Zacks Consensus Estimate for SP Plus’ 2022 earnings has been revised 2.1% upward to $2.89 per share in the past two months. SP has a VGM Score of B.

RCM Technologies, based in Pennsauken, NJ, offers business and technology solutions in the United States, Canada, Puerto Rico, and Serbia. RCMT operates through three segments – Engineering, Specialty Health Care and Life Sciences and Information Technology.

The Zacks Consensus Estimate for RCM Technologies’ 2022 earnings has been revised 1.5% upward to $1.98 in the past two months. RCMT has a VGM Score of A.

Euroseas was formed under the laws of the Republic of the Marshall Islands to consolidate the ship-owning interests of the Pittas family of Athens, Greece, which has been in the shipping business for the last 136 years. It operates in the dry cargo, dry bulk and container shipping markets.

The Zacks Consensus Estimate for Euroseas’ current-year earnings has moved 6.6% north in the past two months. ESEA currently has a VGM Score of A.

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