In the final stretch of the ongoing reporting cycle, it might seem appropriate to lay a wager on stocks based on profit numbers and earnings surprises. But looking beyond profits and evaluating a company’s cash position can be far more rewarding. Because even though profit is a company’s goal, cash is its lifeblood, measure of resiliency and indicator of true financial health.
In fact, even a profit-making company can have a dearth of cash flow and face bankruptcy while meeting its obligations. But a healthy cash position indicates that profits are being efficiently channelized to the company’s reserves, which not only shield it from market mayhem but also offer flexibility to make decisions, chase potential investments and run its growth engine.
To find this efficiency, one needs to consider its net cash flow figure. 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.
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, keep yourself abreast 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 three stocks that qualified the screening:
Turtle Beach Corp. (HEAR - Free Report) is a San Diego, CA-based audio technology company that designs audio products for consumer, commercial and healthcare markets. The company has a VGM Score of A. Turtle Beach has a projected long-term EPS growth rate of 13%. Moreover, the Zacks Consensus Estimate for 2018 earnings has increased 24.8% in the past month.
Frisco, TX-based Integer Holdings Corporation (ITGR - Free Report) is a medical device outsource manufacturer. The company serves the cardiac, neuromodulation, vascular and portable medical markets. It has a VGM Score of B. Moreover, the Zacks Consensus Estimate for 2018 grew 5.9% in the last 30 days.
PCM, Inc. (PCMI - Free Report) , based in El Segundo, CA, is a technology solutions provider to businesses, government and educational institutions as well as individual consumers. The company has a VGM Score of A and projected long-term EPS growth rate of 20.0%. The stock has experienced positive estimate revisions, with the Zacks Consensus Estimate for 2018 earnings moving 12.9% north in a month’s time.
Start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »