Look Beyond Profit, Buy These 4 Stocks With Solid Cash Flows

Investors mostly flock to companies that earn profits, but even a profitable business can succumb to failure if its cash flow is uneven and, eventually, file for bankruptcy. However, one can effectively judge a company’s resilience by looking at its efficiency in generating cash flow. This is because cash not only shields it from any market mayhem, but also indicates that its profits are being channeled in the right direction.

In this regard, stocks like Modine Manufacturing Company MOD, H&E Equipment Services, Inc. HEES, HNI Corporation HNI and Willdan Group, Inc. WLDN are worth buying.

In fact, if achieving profit is a company’s goal, then having a healthy cash flow is highly essential for its existence, development and success. This is because cash gives a company more flexibility with respect to business decisions and potential investments, as well as the fuel to run its growth engine. Cash, in fact, indicates a company’s true financial health. This holds more relevance in the current context amid uncertainties in the global economy, market disruptions and dislocations, as well as liquidity concerns.

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 the 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 industry categories.

Here are our four picks out of the eight stocks that qualified the screening:

Modine Manufacturing operates primarily in a single industry consisting of the manufacturing and sale of heat transfer equipment. These include heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars, trucks, farm and construction machinery and equipment, and heating and cooling equipment for residential and commercial building heating, ventilating, air conditioning and refrigeration equipment.

The Zacks Consensus Estimate for Modine Manufacturing’s fiscal 2024 earnings has moved a cent north in the past month to $3.27 per share. MOD has a VGM Score of B.

H&E Equipment Services is one of the largest integrated equipment services companies in the United States. The company is focused on heavy construction and industrial equipment, as well as rents, sells, and provides parts and service support to the four core categories of specialized equipment. These are hi-lift or aerial platform equipment, cranes, earthmoving equipment and industrial lift trucks.

The Zacks Consensus Estimate for H&E Equipment Services’ current-year earnings has been revised upward by 3.1% in the past two months to $5.02 per share. HEES currently has a VGM Score of A.

HNI Corp. provides products and solutions for home and workplace environments. HNI is a leading global provider and designer of office furniture, and the leading manufacturer and marketer of hearth products.

The Zacks Consensus Estimate for HNI Corp.’s 2024 earnings per share has been revised 6.5% upward to $2.93 in the past two months. HNI has a VGM Score of A.

Willdan Group is a provider of professional technical and consulting services to utilities, private industry and public agencies at all levels of government. WLDN enables its clients to realize cost and energy savings by providing a wide range of specialized services.

The Zacks Consensus Estimate for its current-year earnings has improved 16.8% over the past month to $1.81. WLDN has a VGM Score of B.

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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.

Zacks Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.

This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>

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Willdan Group, Inc. (WLDN) : Free Stock Analysis Report

H&E Equipment Services, Inc. (HEES) : Free Stock Analysis Report

Modine Manufacturing Company (MOD) : Free Stock Analysis Report

HNI Corporation (HNI) : 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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