Forget Profit, Bet On 4 Stocks With Increasing Cash Flows
Zacks Investment Research | Jul 19, 2017 10:22PM ET
Big profits and earnings surprises can lure investors in any earnings season. But looking beyond them and figuring out a company’s cash position can be far more rewarding because that reveals its true financial health.
In fact, even a profit-making company can have a dearth of cash flow and succumb to failure if its profits are not channelized in the right direction. But a company with healthy cash flow can effectively tide over any market mayhem because cash gives it the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. It offers vitality and strength and is indeed the key for company’s existence, development and success.
In any business, cash moves in and out, but it is net cash flow that explains how much money the company is actually making. A positive cash flow indicates an increase in the company’s liquid assets, which provide 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, negative cash flow indicates a decline in the company’s liquidity and in turn lowers its flexibility to support these moves.
Yet, positive cash flow alone is not sufficient to predict a company’s future growth. A company can consistently grow only when positive cash flow is rising. Because increasing cash flow indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running the business and finally improving fundamentals.
Therefore, this earnings season, keep yourself ready 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 Zacks Investment Research
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