The bulk of the Q4 earnings releases are behind us and investors are now interested in betting on stocks based on profit numbers and surprises. But looking beyond profits and figuring out a company’s ability to generate cash flows can be far more rewarding.
This is because cash indicates a company’s true financial health. It offers the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. In fact, even a company generating profits might face bankruptcy while meeting obligations if it is low on cash flow. However, a sturdy cash balance can safeguard companies in times of market turbulence.
Therefore, to effectively find out a company’s resilience and efficiency in generating cash flow, one needs to consider its net cash flow figure. In any business, cash moves in and out, it is net cash flow that indicates how much money the company is actually generating or burning. Having positive cash flows indicates enhanced liquidity, giving the company more power for debt repayment, expenses, dividend payouts, stock buyback and finally reinvestment in business. On the other hand, negative cash flow implies that a company’s liquid assets are decreasing, resulting in reduced flexibility to support these moves.
However, having a positive cash flow merely does not secure a company’s future growth. To ride on the growth curve, a company must have its cash flow increasing because that indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running its business.
Therefore, this earnings season and beyond, don’t look at profits only before picking stocks. Make sure to look for stocks with dependable and increasing 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 four stocks that qualified the screening:
Kulicke&Soffa (KLIC - Free Report) , headquartered in Singapore, is a leading provider of semiconductor packaging and electronic assembly solutions supporting the global automotive, consumer, communications, computing and industrial segments. The company has a VGM Score of A.
Kulicke&Soffa has a projected long-term growth rate of 12%. The stock has experienced positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2018 earnings moving 32% north in a month’s time.
SK Telecom Co., Ltd. (SKM - Free Report) is a provider of wireless telecommunications services in South Korea. The company offers wireless voice transmission services, cellular global roaming services and interconnection services to connect its networks to fixed-line and other wireless networks. The stock has a VGM Score of A.
The stock has experienced solid estimate revisions. The Zacks Consensus Estimate for full-year 2018 earnings has increased 20.5% in a month’s time.
Post Holdings, Inc. (POST - Free Report) is a consumer packaged goods holding company. It operates in the center-of-the-store, foodservice, food ingredient, refrigerated, active nutrition and private label food categories. The company is headquartered in St. Louis, MO. It has a VGM Score of B.
For fiscal 2018, the stock experienced positive estimate revisions with the Zacks Consensus Estimate for earnings moving up 12.7% in a month’s time. Moreover, Post Holdings has a projected long-term growth rate of 14%.
Sanchez Midstream Partners LP , headquartered in Houston, TX, is focused on the acquisition, development, ownership and operation of midstream and other energy related assets. The company has a VGM Score of B.
The stock has experienced positive estimate revisions, with the Zacks Consensus Estimate for full-year 2018 earnings moving 35.4% north in two months’ time.
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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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