Cash is crucial to a company and offers strength and vitality. It gives a company the flexibility to make investment decisions and fuel to run its growth engine.
In fact, even a profit-making company can have a dearth of cash flow and fail to meet its obligations. But a company’s resiliency can be fairly judged when its efficacy in generating cash flows is assessed. 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.
But positive cash flow alone is not sufficient to predict a company’s future growth. A company can competently grow only when this positive cash flow is rising. Increasing cash flow indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running its business.
So, 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 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 four out of the seven stocks that made it through the screen:
Stamps.com Inc. (STMP - Free Report) , based in El Segundo, CA provides Internet-based services for mailing or shipping letters, packages or parcels anywhere in the U.S. The stock has a VGM score of B. With a decent earnings surprise history, the company remains a solid pick. It exceeded estimates in each of the past four quarters, with an average surprise of 66.7%.
Cambrex Corporation (CBM - Free Report) manufactures and markets a broad line of specialty chemicals and commodity chemical intermediates, and manufactures chemicals to customer specifications. The stock has a VGM score of A. It experienced a rise in estimates over the past 30 days.
Gibraltar Industries, Inc. (ROCK - Free Report) , with a VGM score of B, is a leading manufacturer, processor and distributor of metals and other engineered materials for building products, vehicular and other industrial markets. The company is headquartered in Buffalo, NY. This company is a solid performer, having surpassed the Zacks Consensus Estimate in each of the past four quarters, with an average surprise of 67.3%.
FutureFuel Corp. (FF - Free Report) is a manufacturer of diversified chemical products and biobased products comprised of biofuels and biobased specialty chemical products. The company is headquartered in Clayton, MO. Currently, the stock has a VGM score of A. It has a decent earnings surprise history, having exceeded estimates in each of the trailing four quarters with an average beat of 60.6%.
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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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