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Crunching profit numbers and evaluating surprises are what investors most commonly do in their pursuit of big gains. However, what is far more rewarding is an assessment of a company’s cash position because that indicates its true financial health.

In fact, even a profit-making company can end up with a dearth of cash flow, consequently fail to meet its obligations and ultimately file for bankruptcy if its profits are not channelized in the right direction. But a company can weather any market mayhem and still be on the growth track if it has sufficient cash flows.

This is because, cash gives a company the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. It is indeed the key for its existence, development and success.  

Obviously, cash flows in and out, but net cash flow indicates how much money the company is actually generating or burning. Positive cash flow indicates enhanced liquidity, giving the company more means for debt repayment, expenses, dividend payouts, stock buyback and finally reinvestment in business. On the other hand, a negative cash flow implies that a company’s liquid assets are decreasing, resulting in reduced flexibility to support these moves.

However, positive cash flow alone is not adequate to predict a company’s future growth. If the cash flow is increasing over time, it indicates that a company’s competency in growing because rising cash flow implies management’s efficiency in regulating its cash movements, reaping more money from its business, depending less on outside financing and finally its improving fundamentals.

Ahead of the Q3 earnings season, keep yourself ready with the following screen to bet on stocks with rising cash flows.

Screening Parameters:

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 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 the winning stocks in their individual industry categories.

Here are five of the 11 stocks that made it through the screen:

Ducommun Inc. (DCO - Snapshot Report) , headquartered in Carson, CA, manufactures components and assemblies principally for domestic and foreign commercial and military aircraft, and space programs. The company came up with an earnings surprise of 21.43% in the second quarter ended Jul 2, 2016, and experienced a rise in estimates over the past two months. Ducommun has a VGM score of A.

Argan, Inc. (AGX - Snapshot Report) , headquartered in Rockville, MD, through its subsidiaries, offers a full range of services to the power industry including engineering, procurement and construction, commissioning, operations management, maintenance, project development and consulting services. Also, the company provides telecommunications infrastructure services, integrated fabrication, construction and plant services through its subsidiaries.

Argan has a VGM score of A. It came up with an earnings surprise of 84.29% in the fiscal second quarter ended Jul 31, 2016, and its estimates for the current fiscal year moved north in the past one month.

Hallador Energy Company (HNRG - Snapshot Report) , through its wholly owned subsidiary, Sunrise Coal, LLC, is engaged in the production of coal in the Illinois Basin for the electric power generation industry. The company is headquartered in Denver, CO and has a VGM score of A. It experienced a rise in estimates over the past two months.

TDK Corporation (TTDKY - Snapshot Report) is a Tokyo-based manufacturer and seller of electronic components. The company has a VGM score of A.

Lakeland Industries Inc. (LAKE - Snapshot Report) is engaged in manufacturing and selling of a full range of safety garments and accessories for the industrial protective clothing market. The company has a VGM score of B and experienced a rise in estimates over the past one month.

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 backtesting software.

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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.

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