Big profits and solid earnings surprises can lure investors in this ongoing reporting cycle. But analyzing a company’s cash position can be far more rewarding because this reveals its true financial health.
This is because, even after reaping profits, a company can face a dearth of cash flow and get bankrupt while meeting its obligations if its profits are not channelized in the right direction. But a company with healthy cash flows can tide over any market mayhem and ride on the growth curve. Cash is in fact indispensable to any company. It gives strength and vitality, and holds the key to its existence, development and success.
While, in any business, cash moves in and out, it is net cash flow that indicates how much money the company is actually generating or burning. Having positive cash flows indicates enhanced liquidity, giving the company more power for debt repayment, expenses, dividend payouts, stock buyback and finally reinvestment in business. On the other hand, negative cash flow implies that a company’s liquid assets are decreasing, resulting in reduced 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, this earnings season and beyond, don’t look at profits only before picking stocks. Make sure to look for stocks with dependable and increasing 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 three stocks that qualified the screening:
Ingles Markets, Inc. (NASDAQ:IMKTA) , headquartered in Asheville, NC, is a leading supermarket chain with operations in the southeastern United States. The company has a VGM Score of A.
The stock has experienced positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2018 earnings moving 16.3% north in two months’ time.
SORL Auto Parts, Inc. (NASDAQ:SORL) , headquartered in China, specializes in the development, production and distribution of automotive brake systems and other key safety-related auto parts. The company's customer base consists of original equipment manufacturers, aftermarket distributors and international customers. The company has a VGM Score of A.
The stock has experienced solid estimate revisions. In fact, the Zacks Consensus Estimate for full-year 2017 earnings has increased 25.4% in two months’ time.
Kingstone Companies, Inc. (NASDAQ:KINS) is a multi-line property and casualty insurance holding company. Its principal operating subsidiary, Kingstone Insurance Company, is domiciled in the State of New York. It has a VGM Score of B.
The stock experienced positive estimate revisions for full-year 2017, with the Zacks Consensus Estimate for earnings moving up 5% in three months’ time.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
SORL Auto Parts, Inc. (SORL): Free Stock Analysis Report
Kingstone Companies, Inc (KINS): Free Stock Analysis Report
Ingles Markets, Incorporated (IMKTA): Free Stock Analysis Report
Original post
Zacks Investment Research