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Pick These 4 Low P/CF Stocks to Garner Superior Returns
We always try to hit the jackpot while picking stocks. But striking the right chord each time is not easy unless blessed with Midas touch. When it comes to the investment market, experts consider value style as one of the most effective approaches. Value investing is essentially about selecting stocks that have good things going on for them, even at a time when they have been beaten down by some external factors.
There are different valuation metrics to determine a stock's inherent strength but a random selection of ratios cannot serve your purpose if you want a realistic assessment of a company's financial position. For this, we recommend Price to Cash Flow (or P/CF) 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. G-III Apparel Group, Ltd., StoneCo Ltd., Unum Group and Magna International Inc. boasts a low P/CF ratio.
Price to Cash Flow Reveals Financial Health
Questions may arise as to why we are considering the Price to Cash Flow valuation metric, when the most widely used metric is Price/Earnings (or P/E). Well, what makes P/CF stand out is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly reflecting the financial health of a company.
Analysts caution that a company's earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. It is net cash flow that reveals how much money a company is actually generating and how effectively management is putting the same to use.
A positive cash flow indicates an increase in the company's liquid assets. This gives the company the means to settle debt, shell out for its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Then again, a negative cash flow implies a decline in the company's liquidity, which in turn lowers its flexibility to support these moves.
What's the Best Strategy?
An investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the 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.
Here are four of the eight stocks that qualified the screening.
G-III Apparel, which designs, sources, and markets women's and men's apparel, sports a Zacks Rank #1. It has an expected EPS growth rate of 15% for three-five years. The company has a trailing four-quarter earnings surprise of 47.4%, on average. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for G-III Apparel's current financial year sales and EPS suggests growth of 1.9% and 0.4%, respectively, from the year-ago period. G-III Apparel has a Value Score of A. The stock has fallen 0.3% in the past year.
StoneCo, a leading provider of financial technology and software solutions, flaunts a Zacks Rank #1 and has an expected EPS growth rate of 55.2% for three-five years. The company has a trailing four-quarter earnings surprise of 11.8%, on average.
The Zacks Consensus Estimate for StoneCo's current financial year sales and EPS suggests growth of 4.4% and 115.2%, respectively, from the year-ago period. STNE has a Value Score of A. Shares of STNE have rallied 30.3% in the past year.
Unum Group, which provides financial protection benefit solutions, carries a Zacks Rank #2 and has an expected EPS growth rate of 8.4% for three-five years. The company has a trailing four-quarter earnings surprise of 18.6%, on average.
The Zacks Consensus Estimate for Unum Group's current financial year sales and EPS suggests growth of 2.4% and 20.6%, respectively, from the year-ago period. Unum Group has a Value Score of A. Shares of UNM have gained 49.7% in the past year.
Magna International, one of the world's largest suppliers in the automotive space, carries a Zacks Rank #2. It has an expected EPS growth rate of 20.4% for three-five years. The company delivered an earnings surprise of 16.8% in the last reported quarter.
The Zacks Consensus Estimate for Magna International's current financial year sales and EPS suggests growth of 8.8% and 20.2%, respectively, from the year-ago period. Magna International has a Value Score of A. Shares of MGA have risen 5.8% 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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
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Zacks.com featured highlights include G-III Apparel, StoneCo, Unum Group and Magna International
For Immediate Release
Chicago, IL – July 13, 2023 – Stocks in this week’s article are G-III Apparel Group, Ltd. (GIII - Free Report) , StoneCo Ltd. (STNE - Free Report) , Unum Group (UNM - Free Report) and Magna International Inc. (MGA - Free Report) .
Pick These 4 Low P/CF Stocks to Garner Superior Returns
We always try to hit the jackpot while picking stocks. But striking the right chord each time is not easy unless blessed with Midas touch. When it comes to the investment market, experts consider value style as one of the most effective approaches. Value investing is essentially about selecting stocks that have good things going on for them, even at a time when they have been beaten down by some external factors.
There are different valuation metrics to determine a stock's inherent strength but a random selection of ratios cannot serve your purpose if you want a realistic assessment of a company's financial position. For this, we recommend Price to Cash Flow (or P/CF) 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. G-III Apparel Group, Ltd., StoneCo Ltd., Unum Group and Magna International Inc. boasts a low P/CF ratio.
Price to Cash Flow Reveals Financial Health
Questions may arise as to why we are considering the Price to Cash Flow valuation metric, when the most widely used metric is Price/Earnings (or P/E). Well, what makes P/CF stand out is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly reflecting the financial health of a company.
Analysts caution that a company's earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. It is net cash flow that reveals how much money a company is actually generating and how effectively management is putting the same to use.
A positive cash flow indicates an increase in the company's liquid assets. This gives the company the means to settle debt, shell out for its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Then again, a negative cash flow implies a decline in the company's liquidity, which in turn lowers its flexibility to support these moves.
What's the Best Strategy?
An investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and also consider the 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.
Here are four of the eight stocks that qualified the screening.
G-III Apparel, which designs, sources, and markets women's and men's apparel, sports a Zacks Rank #1. It has an expected EPS growth rate of 15% for three-five years. The company has a trailing four-quarter earnings surprise of 47.4%, on average. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for G-III Apparel's current financial year sales and EPS suggests growth of 1.9% and 0.4%, respectively, from the year-ago period. G-III Apparel has a Value Score of A. The stock has fallen 0.3% in the past year.
StoneCo, a leading provider of financial technology and software solutions, flaunts a Zacks Rank #1 and has an expected EPS growth rate of 55.2% for three-five years. The company has a trailing four-quarter earnings surprise of 11.8%, on average.
The Zacks Consensus Estimate for StoneCo's current financial year sales and EPS suggests growth of 4.4% and 115.2%, respectively, from the year-ago period. STNE has a Value Score of A. Shares of STNE have rallied 30.3% in the past year.
Unum Group, which provides financial protection benefit solutions, carries a Zacks Rank #2 and has an expected EPS growth rate of 8.4% for three-five years. The company has a trailing four-quarter earnings surprise of 18.6%, on average.
The Zacks Consensus Estimate for Unum Group's current financial year sales and EPS suggests growth of 2.4% and 20.6%, respectively, from the year-ago period. Unum Group has a Value Score of A. Shares of UNM have gained 49.7% in the past year.
Magna International, one of the world's largest suppliers in the automotive space, carries a Zacks Rank #2. It has an expected EPS growth rate of 20.4% for three-five years. The company delivered an earnings surprise of 16.8% in the last reported quarter.
The Zacks Consensus Estimate for Magna International's current financial year sales and EPS suggests growth of 8.8% and 20.2%, respectively, from the year-ago period. Magna International has a Value Score of A. Shares of MGA have risen 5.8% 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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2119885/pick-these-4-low-pcf-stocks-to-garner-superior-returns
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Contact: Jim Giaquinto
Company: Zacks.com
Phone: 312-265-9268
Email: pr@zacks.com
Visit: https://www.zacks.com/
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.