Investors generally prefer businesses that earn profits. But even a profit-making company can end up being bankrupt while meeting its obligations if it has a dearth of cash flow. Therefore, rather than brooding too much on profit numbers, effectively judging a company’s resiliency by assessing its efficacy in generating cash flows can be far more rewarding.
This is because, cash is the key to a company’s existence, development and success. It offers the flexibility to make decisions, the means to make investments and the fuel to run its growth engine, thereby indicating a company’s true financial health. In fact, cash not only shields a company from market mayhem but also indicates that profits are being channelized in the right direction.
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 the seven stocks that qualified the screening:
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 14.2% to $3.53 in the last 30 days.
Headquartered in Plano, TX, Diodes Incorporated (DIOD - Free Report) is a manufacturer and supplier of application-specific standard products primarily to the communications, computing, industrial, consumer electronics and automotive markets. The stock has a VGM Score of A. The Zacks Consensus Estimate for 2018 earnings per share of $2.35 has risen 8.3% in the past 30 days.
The Woodlands, TX-based Conn’s, Inc. (CONN - Free Report) is a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, as well as provider of consumer credit. The stock has a VGM Score of B. The Zacks Consensus Estimate for fiscal 2019 has improved 1.7% to $2.45 over the last 60 days.
Lisle, IL-based SunCoke Energy, Inc. (SXC - Free Report) is a producer of metallurgical coke in the Americas. The company has a VGM Score of B. Moreover, the Zacks Consensus Estimate for 2018 earnings increased 48.3% to 43 cents per share in the last 30 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.