The coronavirus pandemic is wreaking havoc across the globe, causing sharp drawdowns in markets. The Federal Reserve made unprecedented rate cuts this month, besides announcing $700-billion quantitative-easing program and several other measures to combat COVID-19’ adverse impact on economy.
Amid these, laying a wager on stocks based on its cash-flow generating efficiency seems prudent. This is because cash is the most indispensable factor for any company. It gives strength and vitality, and is the key for its existence, development and success. It is indeed a true indicator of a company’s financial health and a measure of resiliency. In fact, cash not only indicates that profits are being channelized in the right direction but also shields a company from market mayhem.
To figure out this efficiency, one needs to consider a company’s net cash flow. 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 four of the eight stocks that qualified the screening:
Mueller Industries, Inc. (MLI - Free Report) is a leading manufacturer of copper tube and fittings; brass and copper alloy rod, bar and shapes; aluminum and brass forgings; aluminum and copper impact extrusions; plastic fittings and valves; refrigeration valves and fittings; and fabricated tubular products. The stock currently has a VGM Score of A. The Zacks Consensus Estimate of $1.92 for 2020 earnings has been revised 2.1% upward in the past 60 days.
Chicago-based Enova International Inc. (ENVA - Free Report) is a provider of online financial services. The stock has a VGM Score of A. Further, the Zacks Consensus Estimate for current-year earnings moved 7.9% north to $4.64 over the past 60 days.
CBIZ, Inc. (CBZ - Free Report) provides financial, insurance, and advisory services in the United States and Canada. The stock has a VGM Score of B. The company’s expected earnings growth rate for the current quarter is 10.2%. The Zacks Consensus Estimate for the company’s ongoing-year earnings moved up 6.1% in 30 days’ time.
Gibraltar Industries Inc. (ROCK - Free Report) manufactures and distributes products to the industrial and buildings market. It has a VGM Score of B. It witnessed positive earnings estimate revision of nearly 6% for this year in the past month.
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.