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Design a Balanced Portfolio with These 4 Low P/CF Stocks
We believe investment in stocks made on diligent value analysis is one of the best practices. In value investing, investors pick stocks that are cheap but fundamentally sound. There are a number of ratios to identify value stocks but none alone can conclusively determine their inherent potential. Each ratio helps an investor understand a particular aspect of the company’s business.
One such ratio, Price to Cash Flow (or P/CF), can work wonders in stock picking if used prudently. 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. Adtalem Global Education Inc., General Motors Co., Unum Group and KB Home boast a low P/CF ratio.
Why P/CF Ratio?
You must be wondering why we are considering this when the most widely used valuation metric is Price/Earnings (or P/E). Well, an important factor 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. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.
However, 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 take into account 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 chances of falling into a value trap.
Here are four of the 15 stocks that qualified the screening:
Adtalem Global Education, a national leader in post-secondary education and a leading provider of professional talent to the healthcare industry, sports a Zacks Rank #1 currently. The company has a trailing four-quarter earnings surprise of 16.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Adtalem Global’s current financial year sales and EPS suggests growth of 6.4% and 10.2%, respectively, from the year-ago period. ATGE has a Value Score of B. Shares of ATGE have advanced 33.5% in the past year.
General Motors, which designs, builds, and sells cars, trucks, crossovers, and automobile parts globally, carries a Zacks Rank #2 presently. The company has a trailing four-quarter earnings surprise of 20%, on average.
The Zacks Consensus Estimate for General Motors’ current financial year sales and EPS suggests growth of 1.8% and 17.2%, respectively, from the year-ago period. General Motors has a Value Score of A. Shares of GM have risen 25% in the past year.
Unum Group, an international provider of workplace benefits and services, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 5.2%, on average.
The Zacks Consensus Estimate for Unum Group’s current financial year sales and EPS suggests growth of 4.2% and 6.8%, respectively, from the year-ago period. Unum Group has a Value Score of A. Shares of UNM have gained 36.9% in the past year.
KB Home, one of the largest and most recognized homebuilders in the United States, carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 26.1%, on average.
The Zacks Consensus Estimate for KB Home's current financial year sales and EPS suggests growth of 4.8% and 11.2%, respectively, from the year-ago period. KBH has a Value Score of A. Shares of KBH have gained 74.8% in the past year.
You can get the rest of the 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.
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/performance for information about the performance numbers displayed in this press release.
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Zacks.com featured highlights Adtalem Global, General Motors, Unum and KB Home
For Immediate Release
Chicago, IL – April 2, 2024 – Stocks in this week’s article are Adtalem Global Education Inc. (ATGE - Free Report) , General Motors Co. (GM - Free Report) , Unum Group (UNM - Free Report) and KB Home (KBH - Free Report) .
Design a Balanced Portfolio with These 4 Low P/CF Stocks
We believe investment in stocks made on diligent value analysis is one of the best practices. In value investing, investors pick stocks that are cheap but fundamentally sound. There are a number of ratios to identify value stocks but none alone can conclusively determine their inherent potential. Each ratio helps an investor understand a particular aspect of the company’s business.
One such ratio, Price to Cash Flow (or P/CF), can work wonders in stock picking if used prudently. 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. Adtalem Global Education Inc., General Motors Co., Unum Group and KB Home boast a low P/CF ratio.
Why P/CF Ratio?
You must be wondering why we are considering this when the most widely used valuation metric is Price/Earnings (or P/E). Well, an important factor 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. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.
However, 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 take into account 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 chances of falling into a value trap.
Here are four of the 15 stocks that qualified the screening:
Adtalem Global Education, a national leader in post-secondary education and a leading provider of professional talent to the healthcare industry, sports a Zacks Rank #1 currently. The company has a trailing four-quarter earnings surprise of 16.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Adtalem Global’s current financial year sales and EPS suggests growth of 6.4% and 10.2%, respectively, from the year-ago period. ATGE has a Value Score of B. Shares of ATGE have advanced 33.5% in the past year.
General Motors, which designs, builds, and sells cars, trucks, crossovers, and automobile parts globally, carries a Zacks Rank #2 presently. The company has a trailing four-quarter earnings surprise of 20%, on average.
The Zacks Consensus Estimate for General Motors’ current financial year sales and EPS suggests growth of 1.8% and 17.2%, respectively, from the year-ago period. General Motors has a Value Score of A. Shares of GM have risen 25% in the past year.
Unum Group, an international provider of workplace benefits and services, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 5.2%, on average.
The Zacks Consensus Estimate for Unum Group’s current financial year sales and EPS suggests growth of 4.2% and 6.8%, respectively, from the year-ago period. Unum Group has a Value Score of A. Shares of UNM have gained 36.9% in the past year.
KB Home, one of the largest and most recognized homebuilders in the United States, carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 26.1%, on average.
The Zacks Consensus Estimate for KB Home's current financial year sales and EPS suggests growth of 4.8% and 11.2%, respectively, from the year-ago period. KBH has a Value Score of A. Shares of KBH have gained 74.8% in the past year.
You can get the rest of the 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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2248414/design-a-balanced-portfolio-with-these-4-low-pcf-stocks
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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/performance for information about the performance numbers displayed in this press release.