The coronavirus pandemic is wreaking havoc on the global economy and the number of infected patients in the United States is skyrocketing. The consequent market disruption and dislocations have been unprecedented, with significant impact on liquidity.
Against this backdrop, betting on stocks based on cash-flow generating efficiency looks prudent because cash is the lifeblood for a company’s existence, development and success and indicates its true financial health.
And why not? Even a company generating profits succumbs to failure and faces bankruptcy while meeting obligations if it has a dearth of cash flow. However, one can efficiently tide over any market mayhem if it has the cash to shield it. In fact, a healthy cash position indicates that profits are being efficiently channelized to the company’s reserves. This offers flexibility to make decisions, chase potential investments and fuel its growth engine.
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.
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 five of the 12 stocks that qualified the screening:
Headquartered in Carle Place, NY, 1-800-FLOWERS.COM, Inc. FLWS is an e-commerce provider of floral products and gifts. The stock has a VGM Score of A. Moreover, the Zacks Consensus Estimate for fiscal 2020 earnings moved up 1.7% to 60 cents over the past 60 days.
Mueller Industries, Inc. MLI is a leading manufacturer of copper tube and fittings; brass and copper alloy rod, bar and shapes; aluminum and brass forgings; aluminum and copper impact extrusions; plastic fittings and valves; refrigeration valves and fittings; and fabricated tubular products. The stock currently has a VGM Score of A. The Zacks Consensus Estimate of $1.92 for 2020 earnings has been revised 2.1% upward in the past 60 days.
Chicago-based Enova International Inc. ENVA is a provider of online financial services. The stock has a VGM Score of A. Further, the Zacks Consensus Estimate for current-year earnings moved 5% north to $4.64 in 60 days’ time.
eXp World Holdings Inc. EXPI : It is the holding company for eXp Realty and VirBELA, based in Bellingham, WA. The company provides cloud-based real estate brokerage services primarily in the United States and Canada. The stock has a VGM Score of B. The Zacks Consensus Estimate for the ongoing-year earnings per share has been revised upward over the last 30 days. Also, the estimate for current-year sales indicates a 46.2% jump, year over year.
Gibraltar Industries Inc. ROCK manufactures and distributes products to the industrial and buildings market. It has a VGM Score of B. It witnessed a positive earnings estimate revision of nearly 6% for this year in the past two months.
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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.