For Immediate Release
Chicago, IL – September 14, 2023 – Stocks in this week’s article are Select Medical Holdings Corp. SEM, EnerSys ENS, O-I Glass, Inc. OI and PagSeguro Digital Ltd. PAGS.
Pick These 4 Low P/CF Stocks for a Balanced Portfolio
As we navigate the second half of 2023, the stock market presents a surprising picture of resilience and momentum. Inflation, which has long been a concern for investors and consumers alike, is showing signs of abating. Economic growth has not only defied initial fears but has also exceeded expectations. The banking sector, having weathered a regional crisis that sent shockwaves through the financial world, is now showing renewed confidence.
The Federal Reserve has played a pivotal role in steering the economy, with a strategic focus on stabilizing prices. In recent months, the central bank has taken measures to address inflationary pressure by raising the benchmark interest rate. While a section of experts still believes that the Fed may continue to raise rates to bring inflation back to 2%, other looming concerns include a potential government shutdown in October, a geopolitical tussle with China and rising oil prices.
In such a scenario, it may be prudent to revisit your investment strategy. We believe investment in stocks made on diligent value analysis is usually considered one of the best practices. In value investing, investors pick stocks that are cheap but fundamentally sound. There are a number of ratios to identify value stocks but none alone can conclusively determine their inherent potential. Each ratio helps an investor understand a particular aspect of the company’s business.
One such ratio, Price to Cash Flow (or P/CF) can work wonders in stock picking if used prudently. This metric evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per share basis — the lower the number, the better. Select Medical Holdings Corp., EnerSys, O-I Glass, Inc. and PagSeguro Digital Ltd. boast a low P/CF ratio.
Why P/CF Ratio?
You must be wondering why we are considering this when the most widely used valuation metric is Price/Earnings (or P/E). Well, an important factor that makes P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company’s financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.
However, an investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and take into account the price-to-book ratio, price-to-earnings ratio and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chances of falling into a value trap.
Here are four of the seven stocks that qualified the screening:
Select Medical Holdings, one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics and occupational health centers, carries a Zacks Rank #2. The company has an expected EPS growth rate of 23.4% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Select Medical Holdings’ current financial year sales and EPS suggests growth of 4.2% and 56.9%, respectively, from the year-ago period. SEM has a Value Score of A. Shares of SEM have risen 4.5% in the past six months.
EnerSys, the global leader in stored energy solutions for industrial applications, carries a Zacks Rank #2 and has an expected EPS growth rate of 14% for three to five years. The company has a trailing four-quarter earnings surprise of 10.3%, on average.
The Zacks Consensus Estimate for EnerSys’ current financial year sales and EPS suggests growth of 3.8% and 45.7%, respectively, from the year-ago period. ENS has a Value Score of A. Shares of ENS have advanced 17.5% in the past six months.
O-I Glass, one of the leading producers of glass bottles and jars around the globe, carries a Zacks Rank #2. O-I Glass has a Value Score of A and an expected EPS growth rate of 15% for three to five years.
O-I Glass has a trailing four-quarter earnings surprise of 20.5%, on average. Shares of OI have declined 13.4% in the past six months.
PagSeguro Digital, which provides financial technology solutions and services, carries a Zacks Rank #2. It has an expected EPS growth rate of 9.9% for three to five years. The company has a trailing four-quarter earnings surprise of 9.3%, on average.
The Zacks Consensus Estimate for PagSeguro Digital’s current financial year sales and EPS suggests growth of 3.6% and 13%, respectively, from the year-ago period. PagSeguro Digital has a Value Score of A. Shares of PAGS have risen 7% in the past six months.
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For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2148372/pick-these-4-low-pcf-stocks-for-a-balanced-portfolio
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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Contact: Jim Giaquinto
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