Bet On 5 Stocks With Increasing Cash Flows Ahead Of Q3

Crunching profit numbers and evaluating surprises are what investors most commonly do in their pursuit of big gains. However, what is far more rewarding is an assessment of a company’s cash position because that indicates its true financial health.

In fact, even a profit-making company can end up with a dearth of cash flow, consequently fail to meet its obligations and ultimately file for bankruptcy if its profits are not channelized in the right direction. But a company can weather any market mayhem and still be on the growth track if it has sufficient cash flows.

This is because, cash gives a company the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. It is indeed the key for its existence, development and success.

Obviously, cash flows in and out, but net cash flow indicates how much money the company is actually generating or burning. Positive cash flow indicates enhanced liquidity, giving the company more means for debt repayment, expenses, dividend payouts, stock buyback and finally reinvestment in business. On the other hand, a negative cash flow implies that a company’s liquid assets are decreasing, resulting in reduced flexibility to support these moves.

However, positive cash flow alone is not adequate to predict a company’s future growth. If the cash flow is increasing over time, it indicates that a company’s competency in growing because rising cash flow implies management’s efficiency in regulating its cash movements, reaping more money from its business, depending less on outside financing and finally its improving fundamentals.

Ahead of the Q3 earnings season, keep yourself ready with the following screen to bet on stocks with rising cash flows.

Screening Parameters:

To find out 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 Zacks Investment Research

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Written By: Zacks Investment Research