Crunching profit numbers and evaluating surprises might appear a good option in the ongoing reporting cycle but these do not ensure that the profits are being efficiently channeled to the reserves to fund future growth. Because even a profit-making company can have a deficiency of cash flow and might go bankrupt while meeting its obligations.
Therefore to ensure investing in the right stocks, one must look at a company’s proficiency in generating cash flows. 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.
In any business, cash moves in and out, it is net cash flow that indicates how much money the company is actually generating or burning. Having positive cash flows indicates enhanced liquidity, giving the company more power for debt repayment, expenses, dividend payouts, stock buyback and finally reinvestment in business. On the other hand, negative cash flow implies that a company’s liquid assets are decreasing, resulting in reduced 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, this earnings season and beyond, don’t look at profits only before picking stocks. Make sure to look for stocks 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 stocks that qualified the screening:
Kulicke and Soffa Industries, Inc. KLIC, headquartered in Singapore, is a leading provider of semiconductor packaging and electronic assembly solutions supporting the global automotive, consumer, communications, computing and industrial segments. The company has a VGM Score of A.
Kulicke & Soffa has a projected long-term growth rate of 12%. The stock has experienced positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2018 earnings moving 10.9% north in a week’s time.
SK Telecom Co., Ltd. SKM is a provider of wireless telecommunications services in South Korea. The company offers wireless voice transmission services, cellular global roaming services, and interconnection services to connect its networks to fixed-line and other wireless networks. The stock has a Value Score of A.
The stock has experienced solid estimate revisions. In fact, the Zacks Consensus Estimate for full-year 2018 earnings has increased 19.8% in a week’s time.
Post Holdings, Inc. POST is a consumer packaged goods holding company. It operates in the center-of-the-store, foodservice, food ingredient, refrigerated, active nutrition and private label food categories. The company is headquartered in St. Louis, MO. It has a VGM Score of B.
For fiscal 2018, the stock experienced positive estimate revisions with the Zacks Consensus Estimate for earnings moving up 9.2% in a week’s time. Moreover, Post Holdings has a projected long-term growth rate of 10%.
Delta Apparel, Inc. DLA, headquartered in Greenville, SC, is an international design, marketing, manufacturing, and sourcing company having a portfolio of basic and branded apparel, headwear and related accessories. 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 8% north in a week’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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