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Look Beyond Profits, Bet on 4 Stocks With Rising Cash Flows

Moumita Chattopadhyay
Enphase Energy (ENPH) is a promising bet for investors, courtesy of these four factors.

If achieving profit is a company’s goal then having a healthy cash flow is most essential to its existence, development and success. This is because cash offers the flexibility to make decisions, the means to make investments and the fuel to run its growth engine. So it can safely be called the lifeblood of any business.

Often investors flock to companies that earn profits. However, even a profitable business can succumb to failure if its cash flow is uneven and eventually file bankruptcy. Therefore, for prudent investment, one must go beyond profit numbers and look at a company’s efficiency in generating cash flows because cash protects it from market mayhem and indicates that profits are being channelized in the right direction.

To find this efficiency, one needs to consider a company’s net cash flow figure. 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 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 four out of the nine stocks that qualified the screening:

North American Construction Group Ltd. NOA is involved primarily in providing services related to mining and heavy construction primarily in Canada. The stock has a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings was revised 16.4% upward in the past 60 days.

Chicago-based Enova International Inc. ENVA is a provider of online financial services. The stock has a VGM Score of A. Further, the Zacks Consensus Estimate for current-year earnings was revised 6.1% upward to $3.30 in the past 60 days.

Johnson Outdoors Inc. JOUT is a leading global outdoor recreation company that designs, manufactures and markets a portfolio of winning, consumer-preferred brands across four categories — Watercraft, Marine Electronics, Diving and Outdoor Equipment. The company, headquartered in Racine, WI, flaunts a VGM Score of B. The stock has witnessed positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2019 earnings increasing 7.2% over the last 30 days.

Bermuda-based Argo Group International Holdings, Ltd. ARGO underwrites specialty insurance and reinsurance products in the property and casualty markets. The stock has a VGM Score of B. The Zacks Consensus Estimate of $4.27 for 2019 earnings has increased 1.7% over the past 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.