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These 4 Low Price-to-Cash Flow Stocks Have Winning Potential
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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 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, the Price to Cash Flow (or P/CF) ratio is one of the key metrics. PVH Corp. (PVH - Free Report) , Centene Corporation (CNC - Free Report) , AerCap Holdings N.V. (AER - Free Report) and Park Hotels & Resorts Inc. (PK - Free Report) boast a low P/CF ratio.
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 makes 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 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.
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 their 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. The PEG ratio gives a more complete picture than the 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 prospects.
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 five stocks that qualified the screening:
PVH Corp., which operates as an apparel company, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 22.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PVH’s current financial year sales and EPS suggests growth of 3.7% and 15.3%, respectively, from the year-ago period. PVH has a Value Score of A. Shares of PVH have gained 39.3% in the past year.
Centene, a leading healthcare enterprise, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 5.6%, on average.
The Zacks Consensus Estimate for Centene’s current financial year sales and EPS suggests growth of 4.4% and 14.9%, respectively, from the year-ago period. Centene has a Value Score of A. Shares of Centene have declined 9.5% in the past year.
AerCap, a global leader in aviation leasing, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 22%, on average.
The Zacks Consensus Estimate for AerCap’s current financial year sales and EPS suggests growth of 8.4% and 13.8%, respectively, from the year-ago period. AER has a Value Score of A. The stock has risen 15.4% in the past year.
Park Hotels & Resorts, one of the largest publicly traded lodging REITs, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 12.3%, on average.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current financial year sales and EPS suggests growth of 7.7% and 28.6%, respectively, from the year-ago period. PK has a Value Score of A. The stock has increased 17.3% in the past year.
You can get the remaining stock 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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These 4 Low Price-to-Cash Flow Stocks Have Winning Potential
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 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, the Price to Cash Flow (or P/CF) ratio is one of the key metrics. PVH Corp. (PVH - Free Report) , Centene Corporation (CNC - Free Report) , AerCap Holdings N.V. (AER - Free Report) and Park Hotels & Resorts Inc. (PK - Free Report) boast a low P/CF ratio.
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 makes 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 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.
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 their 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. The PEG ratio gives a more complete picture than the 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 prospects.
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 five stocks that qualified the screening:
PVH Corp., which operates as an apparel company, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 22.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PVH’s current financial year sales and EPS suggests growth of 3.7% and 15.3%, respectively, from the year-ago period. PVH has a Value Score of A. Shares of PVH have gained 39.3% in the past year.
Centene, a leading healthcare enterprise, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 5.6%, on average.
The Zacks Consensus Estimate for Centene’s current financial year sales and EPS suggests growth of 4.4% and 14.9%, respectively, from the year-ago period. Centene has a Value Score of A. Shares of Centene have declined 9.5% in the past year.
AerCap, a global leader in aviation leasing, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 22%, on average.
The Zacks Consensus Estimate for AerCap’s current financial year sales and EPS suggests growth of 8.4% and 13.8%, respectively, from the year-ago period. AER has a Value Score of A. The stock has risen 15.4% in the past year.
Park Hotels & Resorts, one of the largest publicly traded lodging REITs, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 12.3%, on average.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current financial year sales and EPS suggests growth of 7.7% and 28.6%, respectively, from the year-ago period. PK has a Value Score of A. The stock has increased 17.3% in the past year.
You can get the remaining stock 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.