Putting your hard earned money in stocks with high profits and earnings surprises is trendy this reporting cycle. However, betting on stocks with a healthy cash level can be far more rewarding because even though profit is a company’s goal, cash is its lifeblood for existence and a measure of resiliency.
This is because even a profit-making company can have a dearth of cash flows and struggle to meet its obligations if its profits are not channelized in the right direction to fund future growth. But a company with adequate cash flows can effectively tide over any market mayhem besides enjoying flexibility to make decisions, chase potential investments and run its growth engine.
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.
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.
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 eight stocks that qualified the screening:
Anhui Conch Cement Company Limited AHCHY, together with its subsidiaries, manufactures and sells clinkers and cement products under the CONCH brand in the People's Republic of China and internationally. It also provides construction and installation services for industrial purposes; logistic and loading services; and mining and related services. The stock has a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings was revised 12.2% upward in the past 60 days.
Air China Limited AIRYY provides airline and airline-related services. It provides air passenger and air cargo services along with aircraft engineering, ground services, air catering services and other airline-related services. The stock has a VGM Score of A. The Zacks Consensus Estimate for the current year improved by 43.5% over the past 90 days.
Domiciled in Oak Brook, IL, Great Lakes Dredge & Dock Corp. GLDD provides dredging services in the United States and internationally. It has a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings of 72 cents per share indicates a significant increase from 17 cents earned a year ago.
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 5.6% upward to $3.56 in the past 30 days.