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Bet on 4 Stocks With Rising Cash Flows to Scoop Big Gains

Moumita C. Chattopadhyay

Cash is the lifeblood of any business. It offers the flexibility to make decisions, the means to make potential investments and fuel to run its growth engine. In fact, it holds the key to a company’s existence, development and success.

Investors obviously flock to companies that earn profits, but even a profitable business can succumb to failure, if its cash flow is uneven, and eventually file for bankruptcy. However, one can effectively judge a company’s resilience by evaluating its power of generating cash flows, as cash not only guards a company from market mayhem, but also indicates that profits are being channelized in the right direction.

To find this efficiency, one needs to consider a company’s net cash flow figure. 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:

SYNNEX Corporation SNX, a leading business process services company, offers a full range of distribution, logistics and integration services for the technology industry, as well as outsourced services focused on customer engagement to a wide array of enterprises. The stock has a VGM Score of A. Moreover, the Zacks Consensus Estimate for fiscal 2020 earnings has moved up 6.1% to $14.01 in the past seven days.

Air Transport Services Group, Inc. ATSG provides air cargo transportation and related services to domestic and foreign air carriers and other companies that outsource their air-cargo lift requirements. It has a VGM Score of A. The Zacks Consensus Estimate for 2020 moved 1.3% north to $1.59 over the past 30 days.

Everi Holdings Inc. EVRI supplies imaginative entertainment and trusted technology solutions for the casino, interactive, and gaming industry. The stock has a VGM Score of A. Further, the Zacks Consensus Estimate for the ongoing-year earnings has been revised 1.8% upward to 58 cents in the past week.

Arcos Dorados Holdings Inc. ARCO operates as a franchisee of McDonald's, with its operations divided in Brazil; North Latin America division; South Latin America and the Caribbean division. The company has a VGM Score of A. The company has an expected earnings growth rate of 35.5% for the current year. The Zacks Consensus Estimate for the current year moved up 2.4% over the last 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.