Laying a wager on stocks based on profit numbers and surprises might seem appropriate in this final stretch of the current reporting cycle. But looking beyond profits and evaluating a company’s cash position can be far more rewarding. Because even though profit is a company’s goal, cash is its lifeblood, measure of resiliency and indicator of true financial health.
In fact, even a profit-making company can have a dearth of cash flow and face bankruptcy while meeting its obligations. But a healthy cash position indicates that profits are being efficiently channelized to the company’s reserves, which not only shield it from market mayhem but also offer flexibility to make decisions, chase potential investments and run its growth engine.
And to find out this efficiency, one needs to consider a company’s net cash flow. While cash moves in and out of any business, it is net cash flow that indicates how much money a company is actually generating.
Experiencing a positive cash flow denotes an increase in the company’s liquid assets. This provides 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, incurring negative cash flow indicates a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
However, only having a positive cash flow does not secure a company’s prospects. To ride the growth curve, a company must have increasing cash flow which indicates management’s efficiency in regulating its cash movements and reducing dependency on external financing sources.
Thus, to scoop up big gains, look beyond profits and select companies with dependable and increasing cash flow.
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:
Rosetta Stone Inc. RST, based in Arlington, VA, is a leading provider of technology-based language learning solutions consisting of software, online services and audio practice tools. The company has a VGM Score of B.
In the trailing four quarters, the stock delivered an average beat of 90.1%. It has a long-term growth rate of 10%
Nova Measuring Instruments Ltd. NVMI is an Israel-based company that develops, produces and markets monitoring and measurement systems for the semiconductor manufacturing industry. The company has a VGM Score of B.
The company is a steady performer, having beaten the Zacks Consensus Estimate in each of the trailing four quarters by an average of 19.3%. Moreover, the Zacks Consensus Estimate for 2017 earnings has climbed 5.1% in a months’ time.
Yaskawa Electric Corporation YASKY, based in Japan, is involved in manufacturing, sales, installation, maintenance and engineering of electrical equipment. The company operates through motion control, robotics, system engineering, information technologies and other business in the Americas, Europe, the Asia Pacific and Africa. It has a VGM Score of B.
The stock has experienced solid estimate revisions. In fact, the Zacks Consensus Estimate for fiscal 2018 earnings has increased 13.2% 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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Rosetta Stone (RST) : Free Stock Analysis Report
Nova Measuring Instruments Ltd. (NVMI) : Free Stock Analysis Report
Yaskawa Electric Corp. (YASKY) : Free Stock Analysis Report
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