The U.S. markets enjoyed a strong and steady rally for most of 2017 backed by strong earnings numbers in consecutive quarters and robust economic growth. This bull run is expected to continue in 2018 as well given an improved outlook for the economy provided by the Fed and the recent tax overhaul with lower corporate taxes.
Amid these, laying a wager on stocks based on profit numbers appears a good option. But looking beyond profits and figuring out a company’s efficiency in generating cash flows can be far more rewarding. This is because cash is the most indispensable factor for any company. It gives strength and vitality, and is the key for its existence, development and success.
To understand this efficiency, one needs to consider a company’s net cash flow. In any business, cash moves in and out. It is net cash flow that explains how much money the company is actually making. 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, 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.
As a result, while picking stocks, go beyond profits and make sure to look for companies with dependable and increasing cash flows.
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 out of nine stocks that qualified the screening:
Ingles Markets, Incorporated 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 a month’s time.
Huntsman Corporation HUN, headquartered in The Woodlands, TX, is a global manufacturer of differentiated and commodity chemical products for a variety of industrial and consumer applications. The company has a VGM Score of A.
Huntsman Corporation has a long-term growth rate of 8.0%. Further, the Zacks Consensus Estimate for full-year 2017 earnings climbed 5.6% in two months’ time.
SORL Auto Parts, Inc. 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 B.
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.
Broadcom Limited AVGO designs, develops and supplies a range of semiconductor devices worldwide. The company has a VGM Score of B.
Broadcom has a long-term growth rate of 13.8%. Further, the stock has experienced positive estimate revisions with the Zacks Consensus Estimate for fiscal 2018 earnings moving up by 13% 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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SORL Auto Parts, Inc. (SORL) : Free Stock Analysis Report
Huntsman Corporation (HUN) : Free Stock Analysis Report
Broadcom Limited (AVGO) : Free Stock Analysis Report
Ingles Markets, Incorporated (IMKTA) : Free Stock Analysis Report
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