Putting one’s hard-earned money in stocks with high profits and impressive earnings surprise records is a popular trend during the final leg of a reporting cycle. However, looking beyond profits and figuring out a company’s ability to generate cash flows seem to be more prudent.
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 profit-generating company might face bankruptcy while meeting obligations, if it is low on cash flow. However, a sturdy cash balance can cushion these firms in case of market turbulence.
To find this efficiency, one needs to consider a company’s net cash flow figure. While in any business cash moves in and out, it is net cash flow that explains how much money a 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 five stocks that qualified the screening:
Schaumburg, IL-based Career Education Corporation is an educational services company committed to providing quality, career-focused learning. The stock has a VGM Score of A. Further, the Zacks Consensus Estimate for 2019 earnings of $1.36 moved up 8.8% over the last seven days.
SP Plus Corporation (SP - Free Report) , based in Chicago, IL, provides professional parking, ground transportation, facility maintenance, security and event logistics services to property owners and managers in all markets of the real estate industry. The company has a VGM score of B. The Zacks Consensus Estimate for ongoing-year earnings has been revised around 3% upward to $2.79 in the last 30 days.
Headquartered in Grand Rapids, MI, Universal Forest Products Inc. (UFPI - Free Report) — soon to be known as UFP Industries, Inc. — is a holding company with its subsidiaries throughout North America, Europe, Asia, and Australia. The company supplies wood, wood composite and other products in retail, industrial, and construction market. The stock has a VGM Score of A. The Zacks Consensus Estimate for the current-year earnings moved 1.7% north, over the past month.
Headquartered in Baton Rouge, LA, H&E Equipment Services, Inc. (HEES - Free Report) , one of the largest integrated equipment services companies in the United States, is focused on heavy construction and industrial equipment and rents, sells, and provides parts and services support for four core categories of specialized equipment. These are hi-lift or aerial platform equipment, cranes, earthmoving equipment and industrial lift trucks. The stock has a VGM Score of A. The Zacks Consensus Estimate for this year’s earnings climbed 4.9% in the last 30 days.
Barrett Business Services, Inc. (BBSI - Free Report) , headquartered in Vancouver, WA, provides business management solutions, with its integrated platform being constructed upon expertise in payroll processing, employee benefits, workers’ compensation coverage, risk management and workplace safety programs, and human resource administration. The stock has a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings improved 9.8% over the past week.
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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.