Buy 5 Leading Stocks with Increasing Cash Flows

Selecting profit-making stocks for investments might be a popular choice but not flawless. This is because even a profit-making company can have a deficiency of cash flow and become bankrupt while meeting its obligations. But one can effectively judge a company’s resilience by looking at its efficiency in generating cash flows.  

Cash, which is indeed the lifeblood of any business, gives a company the flexibility to make decisions, the means to make potential investments and the fuel to run the growth engine. Moreover, cash shields a company from market turmoil and also indicates that profits are being channelized in the right direction.

While, in any business, cash moves in and out, net cash flow explains how much money the company is actually making. 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, positive cash flow alone is not sufficient to predict a company’s future growth. A company can competently grow only when this positive cash flow is rising. Increasing cash flow indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running its business.

Therefore, while picking stocks, look beyond profits and select companies with dependable and increasing cash flows.

Screening Parameters:

To find out 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.

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 screens out the 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 the winning stocks in their individual industry categories.

Here are five out of nine stocks that made it through the screen:

Liberty Interactive Group QVCA is a Zacks Rank #1 stock with a VGM score of “A”. The company owns interests in subsidiaries and other companies that are mainly engaged in the video and digital commerce industries. Its expected EPS growth rate for 3 to 5 years currently stands at 20.0%.

Braskem S.A. BAK is the largest petrochemical operator in Latin America and among the five largest private companies in Brazil. The company has a Zacks Rank #1 and a VGM score of “A”.

AMN Healthcare Services Inc. AHS is a San Diego, CA-based company that offers healthcare workforce solutions and staffing services in the U.S. The company has a Zacks Rank #1 and a VGM score of “B”. The company has a decent earnings surprise history, having surpassed the estimates in each of the past four quarters, with an average surprise of 23.59%.

Amerisafe, Inc. AMSF is a DeRidder, LA-based specialty provider of workers' compensation insurance in the U.S. The company has a Zacks Rank #1 and a VGM score of “B”. Amerisafe has a solid earnings surprise history. It outperformed the estimates in each of the past four trailing quarters, with an average surprise of 25.86%.

Tokyo Electron Limited TOELY is a Zacks Rank #1 stock with a VGM score of “B”. The company, together with its subsidiaries, is engaged in the development, manufacturing and selling of semiconductor and flat panel display production equipment.

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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.

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LIBERTY M INT-A (QVCA): Free Stock Analysis Report
 
AMERISAFE INC (AMSF): Free Stock Analysis Report
 
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AMN HLTHCR SVCS (AHS): Free Stock Analysis Report
 
TOKYO ELECTRON (TOELY): Free Stock Analysis Report
 
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