If profit is a company’s goal then cash is the lifeblood for its existence, development and success. Cash gives a company more flexibility with respect to business decisions and potential investments as well as the fuel to run its growth engine.
In fact, even a profit-making company can have a deficiency of cash flow and face bankruptcy while meeting its obligations. But one can effectively judge a company’s resilience by looking at its efficiency in generating cash flows. Because cash not only shields a company from market mayhem but also indicates that profits are being channelized in the right direction.
To find 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 the company is actually generating.
If a company is experiencing a positive cash flow then it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in 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.
Yet, positive cash flow alone is not adequate to predict a company’s future growth. A company can consistently grow only when this positive cash flow is rising. Increasing cash flow indicates management’s efficiency in regulating its cash movements, less dependency on outside financing for running its business and finally its improving fundamentals.
Therefore, while picking stocks look beyond profits and select companies with dependable and increasing cash flows.
To find out 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 the market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance.
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 screens out the 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 the winning stocks in their individual industry categories.
Here are six stocks that made it through the screen:
Liberty Interactive Group is a Zacks Rank #1 stock with a VGM score of “A”. The company owns interests in subsidiaries and other companies which are mainly engaged in the video and digital commerce industries. Its expected EPS growth rate for 3 to 5 years currently stands at 20.0%.
Braskem S.A. is the largest petrochemical operator in Latin America and among the five largest private companies in Brazil. The company has a Zacks Rank #1 and a VGM score of “A”. Over the past 30 days, the Zacks Consensus Estimate for 2016 and 2017 experienced an increase of 0.4% and 12.9%, respectively, to $2.32 and $1.84 per share.
Ciner Resources LP is engaged in the trona ore mining and soda ash production business and is based in Atlanta, GA. The company has a Zacks Rank #1 and a VGM score of “A”.
Asahi Kasei Corporation (AHKSY - Free Report) is a Zacks Rank #1 company that is engaged in the production and selling of chemical products. The company is headquartered in Tokyo and boasts a VGM score of “A”.
Tokyo Electron Limited (TOELY - Free Report) is a Zacks Rank #1 stock with a VGM score of “A”. The company, together with its subsidiaries, is engaged in the development, manufacturing and selling of semiconductor and flat panel display production equipment. It is based in Tokyo.
TDK Corporation (TTDKY - Free Report) is a Tokyo-based manufacturer and seller of electronic components. TDK has a Zacks Rank #1 stock and a VGM score of “A”.
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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.
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