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.
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 for its existence, development and success.
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.
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 the seven stocks that qualified the screening:
Japan-based Suzuki Motor Corporation SZKMY manufactures and markets motorcycles, automobiles, and marine and power products. The stock has a VGM Score of A. The Zacks Consensus Estimate for fiscal 2020 earnings was revised 5.8% upward in the past 7 days.
Malibu Boats, Inc. MBUU, based in Loudon, TN, operates as a designer, manufacturer and marketer of sport boats primarily in the United States. Malibu Boats has a VGM Score of B. The company’s projected growth rate for the current fiscal year is 40%. The Zacks Consensus Estimate for the current fiscal year improved by 4.3% over the past 60 days.
Based in Quarry Bay, Hong Kong, Lenovo Group Ltd. LNVGY is a personal technology company. It is dedicated to building PCs and mobile Internet devices. It has a VGM Score of B. The Zacks Consensus Estimate for fiscal 2020 earnings of $1.54 was revised 13.2% upward in the past 30 days.
Bermuda-based Argo Group International Holdings, Ltd. ARGO underwrites specialty insurance and reinsurance products in the property and casualty markets. The stock has a VGM Score of B. The Zacks Consensus Estimate of $4.27 for 2019 earnings increased 1.7% over the past 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.
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Lenovo Group Ltd. (LNVGY) : Free Stock Analysis Report
Malibu Boats, Inc. (MBUU) : Free Stock Analysis Report
SUZUKI MOTOR CP (SZKMY) : Free Stock Analysis Report
Argo Group International Holdings, Ltd. (ARGO) : Free Stock Analysis Report
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