Putting your hard earned money in stocks with high profits and earnings surprises is trendy in this final stretch of the current reporting cycle. However, betting on stocks with a healthy cash level can be far more rewarding because even though profit is a company’s goal, cash is its lifeblood for existence and a measure of resiliency.
In fact, even a profit-making company can face a dearth of cash flow if its profits are not channelized in the right direction and finally end up filing for bankruptcy. But a company with a healthy cash level not only enjoys the flexibility to make decisions, chase potential investments and run its growth engine but also weathers any market mayhem.
To find out this efficiency, one needs to consider a company’s net cash flow. Obviously, in any business, cash moves in and out, but it is net cash flow that explains how much money the company is actually making. A positive cash flow indicates an increase in the company’s liquid assets, which provide 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, negative cash flow indicates a decline in the company’s liquidity and in turn lowers its flexibility to support these moves.
Yet, positive cash flow alone is not sufficient to predict a company’s future growth. A company can consistently grow only when positive cash flow is rising. Because increasing cash flow indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running the business and finally improving fundamentals.
Therefore, keep yourself ready with the following screen to bet on stocks with rising cash flows.
To find 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 winning stocks in their individual industry categories.
Here are five out of nine stocks that qualified the screening:
Nutrisystem, Inc. (NTRI - Free Report) is a leading provider of weight management products and services. They offer an at-home weight loss program based on portion-controlled, lower Glycemic Index prepared meals, weight loss plans, and private telephone and online support. The company is headquartered in Fort Washington, PA, and has a VGM Score of A.
The company has a long-term expected earnings growth rate of 18.3%. Also, the stock has experienced positive estimate revisions with the Zacks Consensus Estimate for 2017 earnings moving 12.4% north over the past 30 days.
POSCO (PKX - Free Report) , formerly known as Pohang Iron and Steel Company, is a South Korean company. It is one of the largest steel producers in the world on the basis of output. The company's broad product line includes hot-rolled and cold-rolled products, plates, wire rods, silicon steel sheets and stainless steel products.The company has a VGM score of A.
The stock has also experienced solid estimate revisions, reflecting analysts’ bullishness. In fact, the Zacks Consensus Estimate for 2017 earnings has increased 6.6% over the past 30 days.
BayerischeMotorenWerke AG (BAMXF - Free Report) is a multi-brand automobile manufacturer that focuses on the premium segments of the worldwide automobile and motorcycle markets. It has three brands: BMW, MINI and Rolls-Royce. The company is headquartered in Munich, Germany and has a VGM score of B.
The stock has witnessed solid positive estimate revisions with the Zacks Consensus Estimate for 2017 earnings increasing nearly 18.0% over the past 60 days.
Gray Television, Inc. (GTN - Free Report) is a communications company headquartered in Atlanta, GA. It presently owns and operates television stations as well as digital assets in markets across the U.S. The company has a VGM score of B. Moreover, 2017 earnings estimates have moved up by 2.2% over the past 30 days to 93 cents.
Spark New Zealand (SPKKY - Free Report) , headquartered in Auckland, New Zealand, provides digital services. It provides fixed line, mobile, and internet services, voice, interconnect, managed data, and international products and services and telecommunication services. The company has a VGM Score of B.
Spark has a long-term (3–5 years) expected growth rate of 8.3%. Also, the stock has witnessed positive estimate revisions with the Zacks Consensus Estimate for fiscal 2017 earnings increasing 6.8% over the past 60 days.
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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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