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Crunching profit numbers and evaluating surprises may be a popular method for scooping up big gains in the impending Q2 earnings season. However, looking beyond profit and assessing a company’s cash position, which reveals its true financial health, can be far more rewarding.
In this regard, stocks like Encore Wire Corporation WIRE, Universal Logistics Holdings, Inc. ULH, Hudson Technologies HDSN and Pangaea Logistics Solutions, Ltd. PANL are worth buying.
Even a profitable business can fail if its cash flow is uneven and eventually file for bankruptcy. But a company can navigate any market mayhem and still be on the growth curve if it has sufficient cash flow. This is because cash gives a company the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. It indeed holds the key to its existence, development and success.
Analyzing a company’s cash-generating efficiency also holds more relevance in the current context with uncertainties in the global economy, market disruptions and dislocations, as well as liquidity concerns resulting from geopolitical tensions or the pandemic.
To figure out this efficiency, one needs to consider a company’s net cash flow. 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, it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in the 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.
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 industry categories.
Here are our four picks out of the 17 stocks that qualified the screening:
Encore Wire is a low-cost manufacturer of copper electrical building wire and cable. The company is a significant supplier of residential wire for interior electrical wiring in homes, apartments and manufactured housing, as well as building wire for electrical distribution in commercial and industrial buildings.
The Zacks Consensus Estimate for Encore Wire’s 2022 earnings has been revised upward to $19.18 from $10.74 in the past two months. WIRE has a VGM Score of A.
Universal Logistics is a provider of customized transportation and logistics solutions. It offers services across its entire supply chain, including truckload, brokerage, intermodal, dedicated and value-added services.
The Zacks Consensus Estimate of $4.55 for Universal Logistics’ 2022 earnings has moved 40% north in the past two months. ULH has a VGM Score of A.
Hudson Technologies is a leading provider of innovative solutions to recurring problems within the refrigeration industry.
The Zacks Consensus Estimate for Hudson Technologies’ current earnings has been revised 76.9% upward to $1.38 in two months’ time. HDSN has a VGM Score of A.
Pangaea Logistics Solutions provides seaborne dry bulk logistics and transportation services to industrial customers worldwide. It provides dry bulk cargo transportation services for steel, aluminum, energy, agricultural, and other sectors.
The Zacks Consensus Estimate for Pangaea’s 2022 earnings moved 32.5% north in two months’ time. PANL currently has a VGM Score of A.
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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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Hudson Technologies, Inc. (HDSN) : Free Stock Analysis Report
Encore Wire Corporation (WIRE) : Free Stock Analysis Report
Universal Logistics Holdings, Inc. (ULH) : Free Stock Analysis Report
Pangaea Logistics Solutions Ltd. (PANL) : Free Stock Analysis Report
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