The coronavirus pandemic has affected almost every business worldwide, resulting in unprecedented market disruptions and dislocations adversely impacting liquidity. While chances of reopening of the economy had raised hopes initially, the recent spike in coronavirus cases across several U.S. states is compelling the governments to reinstate restrictions and adhere to social-distancing norms. Amid this, betting on stocks based on their cash-flow generating efficiency seems more relevant.
This is because cash provides vitality and strength to a company. It holds the key to a company’s existence, development and success. Moreover, a healthy cash position indicates that profits are being efficiently channelized to the company’s reserves, helping it enjoy the flexibility to make decisions, chase potential investments and run its growth engine.
The current scenario has proved how cash is the king in times of crisis. Even a profitable business can fail to meet its obligations and succumb to failure if its cash flow is uneven. However, one can sail through any market mayhem if it has the cash shield.
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 four of the eight stocks that qualified the screening:
Great Lakes Dredge & Dock (NASDAQ:GLDD) Corp. GLDD offers dredging services in the United States and internationally. It has a VGM Score of A. The Zacks Consensus Estimate of $1.06 for the current-year earnings calls for a 23.3% year-over-year increase.
Smurfit Kappa Group Plc SMFKY, a Dublin, Ireland-based company, operates as a paper and paperboard manufacturer and converter. It also engages in the manufacturing, distribution and selling of containerboard, corrugated containers and other paper-based packaging products, such as solid board, graphic board and bag-in-box. The stock has a VGM Score of A. The Zacks Consensus Estimate for 2020 earnings has moved up 6.9% over the past 30 days.
Perdoceo Education (NASDAQ:PRDO) Corporation PRDO provides educational services. The company offers bachelor's, associate and non-degree programs in information technologies, visual communication and design technologies, business studies and culinary arts. At present, the stock has a VGM Score of B. The Zacks Consensus Estimate of $1.51 for the ongoing year’s earnings has been revised 4.1% upward over the past 60 days.
Tutor Perini (NYSE:TPC) Corporation TPC is a construction company providing diversified general contracting, construction management, and design-build services to private customers and public agencies worldwide. The stock has a VGM Score of B. The Zacks Consensus Estimate of $2.10 for this year’s earnings moved 16.7% north over the past 60 days.
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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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Great Lakes Dredge Dock Corporation (GLDD): Free Stock Analysis Report
Tutor Perini Corporation (TPC): Free Stock Analysis Report
SMURFIT KAPPA (SMFKY): Free Stock Analysis Report
Career Education Corporation (PRDO): Free Stock Analysis Report
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