Buy 4 Stocks With Rising Cash Flows to Enrich Your Portfolio
We are already into the second-quarter reporting cycle and stocks with top-line growth and increasing profit numbers might be popular choices. But choosing stocks based on a company’s efficiency in generating cash flows can be far more rewarding.
In this regard, stocks like InterDigital, Inc. IDCC, M/I Homes, Inc. MHO, DXP Enterprises, Inc. DXPE and Franklin Covey Co. FC are worth buying.
This is because even a profit-making company can have a dearth of cash flow and become bankrupt while meeting its obligations if its profits are not channelized in the right direction. But a company can effectively weather any market mayhem if it has a solid cash position as that lends a company the flexibility to make decisions, the means to invest and the fuel to run its growth engine. It is indeed the key to a company’s existence, development and success, and reveals its true financial health.
Furthermore, with uncertainties in the global economy, market disruptions and dislocations, as well as liquidity concerns, analyzing a company’s cash-generating efficiency holds more relevance.
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.
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 industry categories.
Here are our four picks out of the nine stocks that qualified the screening:
InterDigital is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The company is engaged in designing and developing a wide range of advanced technology solutions, which are used in digital cellular, and wireless 3G, 4G and IEEE 802-related products and networks.
The Zacks Consensus Estimate for the company’s 2023 earnings per share has marginally improved to $8.08 from $8.07 over the past month. IDCC has a VGM Score of B.
M/I Homes is one of the nation's leading builders of single-family homes. The company designs, markets, constructs and sells single-family homes and attached townhomes to first-time, move-up, empty-nester and luxury buyers.
The Zacks Consensus Estimate for M/I Homes’ current-year earnings has moved up 1.5% over the past week to $12.58 per share. MHO has a VGM Score of A.
DXP Enterprises provides innovative pumping solutions, supply-chain services as well as maintenance, repair, operating and production services.
The consensus estimate for DXP Enterprises’ current-year earnings has been revised 52.2% upward to $3.88 over the past two months. DXPE has a VGM Score of B.
Franklin Covey is an international learning and performance solutions company dedicated to increasing the effectiveness of individuals and organizations. The company provides consulting services, training and education programs, educational materials, publications, assessment and measurement tools, implementation processes, application tools and products designed to empower individuals and organizations to become more effective.
The Zacks Consensus Estimate for Franklin Covey’s fiscal 2023 earnings has been revised 16% upward to $1.23 per share over the past month. FC has a VGM Score of B.
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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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InterDigital, Inc. (IDCC) : Free Stock Analysis Report
DXP Enterprises, Inc. (DXPE) : Free Stock Analysis Report
Franklin Covey Company (FC) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report
