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Forget Profit, Bet on These 4 Stocks With Rising Cash Flows

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·5 min read
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We are at the heart of the current reporting cycle and investors are usually interested in betting on stocks based on profit numbers and surprises. Nevertheless, looking beyond profits and figuring out a company’s ability to generate cash flows can be far more rewarding.

This is because cash indicates a company’s true financial health. It offers the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. In fact, even a company generating profits might face bankruptcy while meeting obligations if it is low on cash flow. However, a sturdy cash balance can cushion companies in times of any market turbulence.

In this regard, stocks like Concentrix Corporation CNXC, Academy Sports and Outdoors, Inc. ASO, Euroseas Ltd. ESEA and DLH Holdings Corp. DLHC are worth buying.

Moreover, the uncertainties in the global economy, market disruptions and dislocations, and liquidity concerns that resulted from the coronavirus pandemic have all the more established the relevance of analyzing a company’s cash-generating efficiency.

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 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 out of the 10 stocks that qualified the screening:

Concentrix is a leading global provider of customer experience solutions and technology, helping in the improvement of business performance of some of the world’s best brands.

The fiscal 2022 Zacks Consensus Estimate for Concentrix’s earnings has been revised 11.4% upward over the past month. CNXC has a VGM Score of B.

Academy Sports and Outdoors is a sporting goods and outdoor recreation retailer principally operating in the United States. The company's product assortment focuses on outdoor, apparel, footwear and sports & recreation.

The Zacks Consensus Estimate for Academy Sports and Outdoors’ fiscal 2021 earnings has been revised 13% upward in the past two months. ASO sports a VGM Score of B.

Euroseas was formed under the laws of the Republic of the Marshall Islands to consolidate the ship-owning interests of the Pittas family of Athens, Greece, which has been in the shipping business for the last 136 years. It operates in the dry cargo, dry bulk and container shipping markets.

The Zacks Consensus Estimate for Euroseas’ current-year earnings has moved 12.4% north in the past month. ESEA currently has a VGM Score of A.

DLH Holdings serves clients throughout the United States as a full-service provider of healthcare, logistics, and technical support services to the Department of Defense and Federal agencies.

The Zacks Consensus Estimate for DLH Holdings’ fiscal 2022 earnings has been revised 7.2% upward in the past week. DLHC has a VGM Score of A.

Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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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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Euroseas Ltd. (ESEA) : Free Stock Analysis Report
Concentrix Corporation (CNXC) : Free Stock Analysis Report
DLH Holdings Corp. (DLHC) : Free Stock Analysis Report
Academy Sports and Outdoors, Inc. (ASO) : Free Stock Analysis Report
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