U.S. equities moved higher yesterday, with technology shares providing notable support to the broader market. The S&P 500 advanced 51.23 points, or 0.7%, to 7,773.95, while the Dow Jones Industrial Average gained 90.94 points, or 0.2%, to 51,267.90. The Nasdaq Composite climbed 286.45 points, or 1.1%, to 27,477.31. Stronger technology stocks helped extend the Nasdaq’s momentum, marking a second consecutive session of sizable gains in October.

Investor sentiment was supported by September employment data, which showed nonfarm payrolls rose by just 29,000, falling short of market expectations. The softer labor-market reading reduced expectations that the Federal Reserve would raise interest rates at its policy meeting this month. The shift in expectations comes after the Federal Reserve lifted its benchmark interest-rate range to 3.75%-4.00% last month.

Against this backdrop, value stocks may warrant greater investor attention, as they offer exposure to fundamentally sound companies trading at relatively attractive valuations. Uncertainty surrounding the pace of economic growth and the Federal Reserve’s next policy moves reinforces the appeal of maintaining exposure to companies with established operations and reasonable valuations.

When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. This metric measures the market price of a stock relative to the cash flow the company generates per share. A lower P/CF ratio indicates that the stock is trading at a better value, offering strong cash generation potential relative to its price. Here are four companies — Signet Jewelers Limited (SIG Quick QuoteSIG - Free Report) , Lifetime Brands, Inc. (LCUT Quick QuoteLCUT - Free Report) , Arrow Electronics, Inc. (ARW Quick QuoteARW - Free Report) and EnerSys (ENS Quick QuoteENS - Free Report) — that boast a low P/CF ratio.

Price to Cash Flow Reveals Financial Health

Questions may arise as to why we are considering the P/CF valuation metric when the most widely used metric is Price/Earnings (or P/E). Well, what makes P/CF stand out is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, reflecting a company's financial health.

Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. It is net cash flow that reveals how much money a company is actually generating and how effectively management is putting the same to use.

A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, shell out for its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Then again, a negative cash flow implies a decline in the company’s liquidity, which lowers its flexibility to support these moves.

What’s the Best Value Investing Strategy?

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 also consider 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 chance of falling into a value trap.

Here are the parameters for selecting true-value stocks: 

P/CF less than or equal to X-Industry Median.

Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.

Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.

P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.

P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.

P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio, the more attractive the stock is.

PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio portrays a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.

Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

Here are four of the 19 value stocks that qualified the screening:

Signet, a leading specialty jewelry retailer operating brands such as Kay Jewelers, Zales, Jared and Diamonds Direct, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 86.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Signet’s current financial-year sales and EPS indicates growth of 0.8% and 21.9%, respectively, from the year-ago period. SIG has a Value Score of A. Shares of SIG have risen 7.7% over the past year.

Lifetime Brands, a leading global provider of branded kitchenware, tableware and other products, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 271.1%, on average. 

The Zacks Consensus Estimate for Lifetime Brands’ current financial-year sales and EPS indicates growth of 4.4% and 156.8%, respectively, from the year-ago period. LCUT has a Value Score of A. Shares of LCUT have soared 137.2% over the past year.

Arrow Electronics sources and engineers technology solutions for thousands of leading manufacturers and service providers. The stock sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 34.4%, on average. 

The Zacks Consensus Estimate for Arrow Electronics’ current financial-year sales and EPS indicates growth of 27.6% and 92.7%, respectively, from the year-ago period. ARW has a Value Score of A. Shares of ARW have surged 100.9% over the past year.

EnerSys, a global leader in stored energy solutions for industrial, infrastructure and defense applications, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 11.5%, on average.

The Zacks Consensus Estimate for EnerSys’ current financial-year sales and EPS indicates growth of 3.7% and 27%, respectively, from the year-ago period. ENS has a Value Score of B. Shares of ENS have advanced 70.6% over the past year.