Achieving profit is no doubt a company’s goal, but having healthy cash flow is imperative to its existence, development and success. This is because cash indicates a company’s true financial health. It offers the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine.
In fact, even a company generating profits might succumb to failure and face bankruptcy while meeting its obligations if it has a dearth of cash flow. But one can efficiently tide over any market mayhem if it has the cash to shield it.
Therefore, to effectively find out a company’s resilience and efficiency in generating cash flows, one needs to consider a company’s net cash flow. While, in any business, cash moves in and out, it is net cash flow that explains how much money the company is actually generating.
If a company is experiencing 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.
So, to scoop up big gains, look beyond profits and select companies with dependable and increasing cash flows.
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 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 the winning stocks in their individual industry categories.
Here are four out of the eight stocks that made it through the screen:
Braskem SA (ADR) (BAK) is the largest petrochemical operator in Latin America and produces and sells thermoplastic resins. The company is based in Brazil. The stock has a Zacks Rank #1 and a VGM score of A. Over the past 30 days, the Zacks Consensus Estimate for 2016 and 2017 experienced an increase of 1.5% and 6.1%, respectively, to $3.37 and $2.26 per share.
Moreover, Braskem has logged in a return of 45.8% year to date, which is way better than the 18.6% gain witnessed by the Zacks categorized Oil & Gas Integrated International industry.
Cambrex Corporation (CBM) offers products, services and technologies that accelerate and improve the development and commercialization of new and generic therapeutics. The East Rutherford, NJ based company beat earnings thrice in the trailing four quarters, with an average positive surprise of 19.8%. The stock has a VGM score of A. The Zacks Consensus Estimate for 2016 earnings increased by 9 cents (3.7%) to $2.55 per share over the last 60 days.
Further, Cambrex’s year-to-date return is 14.9%, marking a stark contrast to the Zacks categorized Medical-Biomedical and Genetics industry’s loss of 26.0%.
FutureFuel Corp. (FF) is a manufacturer of diversified chemical products and biobased products comprising biofuels and biobased specialty chemical products. The company is headquartered in Clayton, MO. Currently, the stock has a VGM score of A. It has a decent earnings surprise history, having exceeded estimates in each of the trailing four quarters, with an average beat of 60.6%. Also, the Zacks Consensus Estimate for 2016 earnings increased by 8 cents (8.0%) to $1.08 per share over the last 60 days.
FutureFuel’s return of 39.7% over the past six months is above the Zacks categorized Biofuels industry’s gain of 30.5%.
Gibraltar Industries Inc (ROCK), with a VGM score of B, is a leading manufacturer, processor and distributor of metals and other engineered materials for building and other industrial markets. The company is headquartered in Buffalo, NY. This company is a solid performer, having surpassed the Zacks Consensus Estimate in each of the past four quarters, with an average surprise of 67.3%. The Zacks Consensus Estimate for 2016 earnings climbed 14 cents (9.7%) over the past 60 days to $1.58.
Gibraltar’s year-to-date return of 72.4% is significantly ahead of the Zacks categorized Building Products- Miscellaneous industry’s return of 19.5%.
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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.
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