Investors can be lured by big profits and solid earnings surprises in this ongoing reporting cycle. However, during this earnings season and beyond, betting on stocks with a healthy cash level can be far more rewarding because cash is the lifeblood for a company’s existence, a measure of resiliency, and a revelation of its true financial health.
In fact, even after reaping profits, a company can face a dearth of cash flow and get bankrupt while meeting its obligations if its profits are not channelized in the right direction. But a company with adequate cash flows can effectively tide over any market mayhem besides enjoying flexibility in decision making and chasing potential investments.
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 four out of eight stocks that qualified the screening:
Altra Industrial Motion Corp. (AIMC - Free Report) , headquartered in Braintree, MA, is one of the leading manufacturers and distributors of power transmission and motion control products. The stock has a VGM Score of A. The Zacks Consensus Estimate for 2018 earnings has moved 1.6% upward to $2.58, in 30 days’ time.
UFP Technologies Inc. (UFPT - Free Report) , based in Newburyport, MA, designs and converts foams, plastics, composites and natural fiber materials for the medical, automotive, consumer, electronics, industrial and aerospace and defense markets in the United States. The stock has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 4.8% over the last 60 days.
Verso Corp. (VRS - Free Report) , based in Miamisburg, OH, produces coated freesheet, coated ground wood, and uncoated super calendared papers and pulp. It serves to magazine and catalog publishers, commercial printers, specialty retail merchandisers and paper merchants. The stock has a VGM Score of A. Moreover, the Zacks Consensus Estimate for current-year earnings has increased to $3.09 from $2.01 in the last 30 days.
Irvine, CA-based Tilly's, Inc. (TLYS - Free Report) is a specialty retailer in the action sports industry selling clothing, shoes and accessories. It has a VGM Score of A. The stock has witnessed positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2018 earnings moving 11.1% north, over the last 60 days.
Get the rest of the stocks on the list and 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 »