Investors may find it prudent to park their hard-earned money in stocks based on profit levels. But even a profitable business can succumb to failure if its cash flow is uneven and eventually file bankruptcy.
Therefore, to effectively judge a company's resilience, look at its efficiency in generating cash flows. This is because cash indicates a company's true financial health. It holds the key to its existence, development and success. It offers the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. Moreover, cash not only shields a company from market mayhem but also indicates that profits are being channelized in the right direction.
To find 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 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.
Yet, positive cash flow alone is not adequate to predict a company's future growth. A company can consistently grow only when this positive cash flow is rising. Increasing cash flow indicates management's efficiency in regulating its cash movements, less dependency on outside financing for running its business and finally its improving fundamentals.
To find out 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 Scoreof B or better: This score is also of great assistance in selecting stocks. Importantly, this scoring system helps in picking the winning stocks in their individual industry categories.
Here are four out of the seven stocks that made it through the screen:
Stamps.com Inc.STMP , based in El Segundo, CA provides Internet-based services for mailing or shipping letters, packages or parcels anywhere in the U.S. The stock has a VGM score of B. With a decent earnings surprise history, the company remains a solid pick. It exceeded estimates in each of the past four quarters, with an average surprise of 66.7%. Further, the Zacks Consensus Estimate for 2016 earnings surged $1.08 (19.8%) over the past 30 days to $6.53.
Moreover, Stamps.com logged in a return of 16.1% over the past six months, which is way better than the 7.8% gain booked by the Zacks categorized Electronic Commerce Industry.
Gibraltar Industries, Inc.ROCK , with a VGM score of B, is a leading manufacturer, processor and distributor of metals and other engineered materials for building and other industrial markets. The company is headquartered in Buffalo, NY. This company is a solid performer, having surpassed the Zacks Consensus Estimate in each of the past four quarters, with an average surprise of 67.3%. The Zacks Consensus Estimate for 2016 earnings climbed 14 cents (9.7%) over the past 60 days to $1.58.
Gibraltar's year-to-date return of 80.6% is significantly ahead of the Zacks categorized Building& Construction Products-Miscellaneous Industry's return of 17.5%.
FutureFuel Corp.FF is a manufacturer of diversified chemical products and biobased products comprising biofuels and biobased specialty chemical products. The company is headquartered in Clayton, MO. Currently, the stock has a VGM score of A. It has a decent earnings surprise history, having exceeded estimates in each of the trailing four quarters, with an average beat of 60.6%. Also, the Zacks Consensus Estimate for 2016 earnings increased by 8 cents (8.0%) to $1.08 per share over the last 30 days.
FutureFuel's year-to-date return of 11.3% is way above the Zacks categorized Biofuels industry's gain of 8.1%.
Cambrex CorporationCBM offers products, services and technologies that accelerate and improve the development and commercialization of new and generic therapeutics. The East Rutherford, NJ based company beat earnings thrice in the trailing four quarters, with an average positive surprise of 19.8%. The stock has a VGM score of B. The Zacks Consensus Estimate for 2016 earnings increased by 9 cents (3.7%) to $2.55 per share over the last 60 days.
Further, Cambex's year-to-date return is 6.5%, marking a stark contrast to the Zacks categorized Medical-Biomed/Genetics Industry's negative return of 25.6%.
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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 .
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