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Investing one’s hard-earned money in stocks with high profits and impressive earnings surprise records is a trend during the final leg of a reporting cycle. However, rather than brooding too much on profit numbers, strategically judging a company’s resiliency by assessing its efficacy in generating cash flow can be far more rewarding.
This is because cash indicates a company’s true financial health. It offers the flexibility to make decisions, the means to make potential investments as well as the fuel to run its growth engine. In fact, even a profit-generating company might face bankruptcy while meeting obligations, if it is low on cash flow. Nevertheless, a sturdy cash balance can cushion these firms in case of any market turbulence.
Particularly, analyzing a company’s cash-generating efficiency holds more relevance in the current context as the coronavirus pandemic has given 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 four out of the 10 stocks that qualified the screening:
Citi Trends, Inc. CTRN is a value-priced retailer of urban fashion apparel and accessories for the entire family. The stock currently sports a VGM Score of A. The Zacks Consensus Estimate for fiscal 2022 earnings has been revised upward to $5.21 from $3.00 in the past 30 days.
Daimler AG DDAIF, with its businesses Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans and Daimler Buses, is a globally renowned producer of premium passenger cars and manufacturer of commercial vehicles in the world. The stock currently carries a VGM Score of A. The Zacks Consensus Estimate of $13.52 for the current-year earnings moved 17.3% upward over the past month.
Internet Initiative Japan, Inc. IIJIY: The company offers a comprehensive range of Internet access and other network services mainly to enterprise customers and also to other Internet service providers in Japan. The stock currently carries a VGM Score of B. The Zacks Consensus Estimate for earnings of the fiscal year ending March 2021 moved 25.8% north from 66 cents to 83 cents in two months’ time.
Century Communities, Inc. CCS is a home-building and construction company. Its activities comprise land acquisition, development, and entitlements; and the acquisition, development, construction, marketing, and sale of various single-family detached and attached residential home projects. The stock currently has a VGM Score of B. The Zacks Consensus Estimate for the ongoing-year earnings has been revised upward to $11.73 from $8.32 in a month’s time.
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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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Citi Trends, Inc. (CTRN): Free Stock Analysis Report
Daimler AG (DDAIF): Free Stock Analysis Report
Century Communities, Inc. (CCS): Free Stock Analysis Report
Internet Initiative Japan, Inc. (IIJIY): Free Stock Analysis Report
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