Look Beyond Profit, Buy These 4 Stocks With Increasing Cash Flows
If achieving profit is a company’s goal, then having a healthy cash flow is essential for its existence, development and success. Cash offers the company flexibility to make decisions, the means to make investments, the fuel to run its growth engine, and can, indeed, be called the lifeblood of any business.
In this regard, stocks like M/I Homes, Inc. MHO, Modine Manufacturing Company MOD, The Andersons, Inc. ANDE and Limbach Holdings, Inc. LMB are worth buying.
Often, investors flock to companies with solid top-line growth and increasing profit numbers. However, even a profit-making company can have a dearth of cash flow and face bankruptcy while meeting its obligations.
Therefore, to invest in the right stocks, one must go beyond profit numbers and look at a company’s efficiency in generating cash flows because cash not only guards it from market mayhem but also suggests that profits are being channeled in the right direction. In fact, cash indicates a company’s true financial health. This holds more relevance in today’s world amid uncertainties in the global economy, market disruptions and dislocations, as well as liquidity concerns.
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 16 stocks that qualified the screening:
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 36.1% over the past two months to $16.88 per share. MHO has a VGM Score of B.
Modine Manufacturing operates primarily in a single industry consisting of the manufacture and sale of heat transfer equipment. These include heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars, trucks, farm and construction machinery and equipment, and heating and cooling equipment for residential and commercial building heating, ventilating, air conditioning and refrigeration equipment.
The Zacks Consensus Estimate for Modine Manufacturing’s fiscal 2024 earnings has moved 15.7% north in the past month to $2.72 per share. MOD sports a VGM Score of A.
The Andersons is a regional grain merchandiser with diversified businesses in agriculture, plant nutrient formulation and distribution, turf product production, railcar marketing and general merchandise retailing that generate revenues. The company maintains grain and production facilities throughout the Midwest and retail locations in northern and central Ohio.
The Zacks Consensus Estimate for Andersons’ current-year earnings has been revised upward by 21.8% in the past month to $2.90 per share. ANDE currently has a VGM Score of A.
Limbach Holdings provides building systems. The company engineers, constructs and services the mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems.
The Zacks Consensus Estimate for Limbach Holdings’s 2023 earnings has moved 21.4% north in the past month to $1.36 per share. LMB sports a VGM Score of A.
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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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The Andersons, Inc. (ANDE) : Free Stock Analysis Report
Modine Manufacturing Company (MOD) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report
Limbach Holdings, Inc. (LMB) : Free Stock Analysis Report
