We are in one of the busiest weeks of the current reporting cycle, and betting on stocks based on profit numbers and earnings surprise is in trend. But looking beyond profits and figuring out a company’s cash position can be far more rewarding.
This is because, even though profit is a company’s goal, cash is a necessity for its existence, development and success, and indeed a measure of resiliency. In fact, even a profit-making company can face cash trouble and end up being bankrupt while meeting its obligations. But a company with a solid cash flow can endure any market mayhem besides enjoying flexibility in decision making, chasing potential investments and fueling its growth engine.
Moreover, analyzing a company’s cash-generating efficiency holds more relevance in the current context as the coronavirus pandemic is giving rise to uncertainties in the global economy, market disruptions and dislocations, and 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 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 the five out of 11 stocks that qualified the screening:
Delta Apparel, Inc. DLA, headquartered in Greenville, SC, is an international design, manufacturing, sourcing and marketing company having a portfolio of core activewear and lifestyle apparel products. The company has a VGM Score of A. The stock has witnessed positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2020 and 2021 earnings per share moving significantly northward to 85 cents and $1.44 from 40 cents and $1.03, respectively, in a month’s time.
KBR, Inc. KBR, headquartered in Houston, TX, provides professional services and technologies across the asset and program life-cycle within the government and technology sectors. At present, the stock has a VGM Score of A. The Zacks Consensus Estimate of $1.67 for 2020 earnings moved 2.5% north over the past 30 days.
PEUGEOT SA PUGOY manufactures and sells passenger cars and light commercial vehicles under the Peugeot, Citroën and DS brands; and automotive equipment, including interior systems, automotive seating, automotive exteriors and emission-control technologies. It also offers retail financing to car customers and wholesale financing to dealer networks. Currently, the stock has a VGM Score of B. The Zacks Consensus Estimate for its ongoing-year earnings has remained unchanged over the past week at $3.22.
SYNNEX Corporation SNX is a leading business process services company. The company provides a comprehensive range of distribution, logistics and integration services for the technology industry and outsourced services focused on customer engagement to a broad range of enterprises. The stock currently has a VGM Score of B. The Zacks Consensus Estimate for fiscal 2020 earnings has been revised 14% upward to $12.25 over the past 30 days.
Polymetal International plc. AUCOY is a metal producer primarily in Russia, Kazakhstan, and Armenia. It principally explores gold and silver. Polymetal International plc is headquartered in Saint Petersburg, the Russia Federation. The stock currently has a VGM Score of B. The Zacks Consensus Estimate of $2.41 for 2020 earnings has moved 5.7% north over the past 30 days.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
KBR, Inc. (KBR): Free Stock Analysis Report
SYNNEX Corporation (SNX): Free Stock Analysis Report
Delta Apparel, Inc. (DLA): Free Stock Analysis Report
PEUGEOT SA (PUGOY): Free Stock Analysis Report
Polymetal International PLC Sponsored ADR (AUCOY): Free Stock Analysis Report
To read this article on Zacks.com click here.
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.