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Look Beyond Profit, Bet on 5 Stocks With Rising Cash Flows

Zacks Equity Research
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Crunching profit numbers and evaluating surprises might appear a good option in the ongoing reporting cycle. But looking beyond profits and evaluating a company’s cash position can be far more rewarding.

This is because, even a profit-making company can have a dearth of cash flow and face bankruptcy while meeting its obligations. But a healthy cash position indicates that profits are being efficiently channelized to a company’s reserves, which not only shield it from market mayhem but also offer flexibility to make decisions, chase potential investments and run its growth engine. Cash is indeed an indicator of true financial health.

Therefore to ensure that you are investing in the right stocks, take a look at a company’s proficiency in generating cash flows. While in any business cash moves in and out, it is net cash flow that explains how much money the company is actually making.

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.

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 five out of 10 stocks that qualified the screening:

Headquartered in Evansville, IN, Shoe Carnival, Inc. SCVL offers a broad assortment of moderately priced dresses, casual and athletic footwear for men, women and children with emphasis on national and regional brands. The stock has a VGM Score of A. The company’s expected earnings growth for fiscal 2019 is 10.33%. Moreover, the Zacks Consensus Estimate for fiscal 2019 bottom line has inched 1.5% up in the last 30 days.

Fremont, CA-headquartered SYNNEX Corporation SNX is a business process services company, offering a wide-range of distribution, logistics and integration services to the technology industry. The company also offers outsourced services dedicated to customer engagement to a wide array of enterprises. The stock has a VGM Score of A. The company’s expected earnings growth for fiscal 2019 is 8.45%. The Zacks Consensus Estimate for fiscal 2019 earnings per share has been raised 1.2% over the last 30 days.

Domiciled in St. George, UT, SkyWest, Inc. SKYW is the holding company for SkyWest Airlines and an aircraft leasing company. SkyWest provides commercial air service in cities throughout North America. The stock has a VGM Score of A. The company’s expected earnings growth for the current year is 9.06%. The Zacks Consensus Estimate for current-year earnings has been revised 5.1% upward in the last seven days.

Middlefield Banc Corp. MBCN, headquartered in Middlefield, OH, is the bank holding company for The Middlefield Banking Company, which offers a range of banking products and services. The stock has a VGM Score of B. The company’s projected growth rate for the current year is 10.7%. The Zacks Consensus Estimate for the current year has improved 6% over the last 30 days.

Based in Souderton, PA, Univest Financial Corporation UVSP is the bank holding company for Univest Bank and Trust Co., which offers a range of banking products and services. It has a VGM Score of B. The company’s expected earnings growth for the current year is 8.9%. The Zacks Consensus Estimate for the current year has improved 2.8% over the last 30 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.