Look Beyond Profit, Bet on 4 Stocks With Increasing Cash Flows

Crunching profit numbers and evaluating surprises might appear a good option in the ongoing reporting cycle but these do not ensure that the profits are being efficiently channeled to the reserves for funding growth. This is because even a profit-making company can have a deficiency of cash flow and go bankrupt while meeting its obligations.

Therefore, one must look at a company’s proficiency in generating cash flows before investing in the right stocks. 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

In this regard, stocks like Fidelity National Financial, Inc. FNF, Academy Sports and Outdoors, Inc. ASO, Internet Initiative Japan, Inc. IIJIY and Euroseas Ltd. ESEA are worth buying.

In fact, the uncertainties in the global economy, market disruptions and dislocations, and liquidity concerns that resulted from the coronavirus pandemic have all the more established the relevance of analyzing a company’s cash-generating efficiency.

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, 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.

Screening Parameters:

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 14 stocks that qualified the screening:

Fidelity National Financial Inc. is a leading provider of title insurance and transaction services to the real estate and mortgage industries.

The Zacks Consensus Estimate for Fidelity National Financial’s 2022 earnings has moved up 4.6% over the past two months. FNF currently has a VGM Score of B.

Academy Sports and Outdoors Inc. is a sporting goods and outdoor recreation retailer principally in the United States. The company's product assortment focuses on outdoor, apparel, footwear and sports & recreation.

The Zacks Consensus Estimate for Academy Sports and Outdoors’ fiscal 2021 earnings has been revised 3.1% upward in the past month. ASO sports a VGM Score of A.

Internet Initiative Japan Inc. offers a comprehensive range of Internet access services and Internet-related services to customers, including corporations and other Internet-service providers, in Japan.

The Zacks Consensus Estimate for earnings of the fiscal year ending March 2022 moved 14.4% north in the past two months. IIJIY currently flaunts a VGM Score of A.

Euroseas was formed under the laws of the Republic of the Marshall Islands to consolidate the ship-owning interests of the Pittas family of Athens, Greece, which has been in the shipping business for the last 136 years. It operates in the dry cargo, dry bulk and container shipping markets.

The Zacks Consensus Estimate for Euroseas’ current-year earnings has moved 22.7% north in the past month. ESEA currently sports a VGM Score of A.

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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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Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report
Euroseas Ltd. (ESEA): Free Stock Analysis Report
Internet Initiative Japan, Inc. (IIJIY): Free Stock Analysis Report
Academy Sports and Outdoors, Inc. (ASO): Free Stock Analysis Report
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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