Subscribe to Entrepreneur for $5
Subscribe

Bet on These 4 High-Flying Stocks With Increasing Cash Flows

Looking beyond profits at a company's cash position will be far more rewarding as this highlights its true financial health.

By
This story originally appeared on Zacks

Investors mostly flock to companies that earn profits, but even a profitable business can succumb to failure if its cash flow is uneven and eventually, file for bankruptcy. However, one can effectively judge a company’s resilience by looking at its efficiency in generating cash flow. This is because cash not only shields it from any market mayhem, but also indicates that its profits are being channelized in the right direction.



In fact, if achieving profit is a company’s goal, then having a healthy cash flow is highly essential for its existence, development and success. This is because cash gives a company more flexibility with respect to business decisions and potential investments as well as the fuel to run its growth engine. Cash, in fact, indicates a company’s true financial health.



This holds more relevance in the current times as the coronavirus pandemic has resulted in uncertainties in the global economy, market disruptions and dislocations, and liquidity concerns.



To figure out this efficiency, 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 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.

- Zacks

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 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 winning stocks in their individual industry categories.



Here are the four out of the 12 stocks that qualified the screening:



Grindrod Shipping Holdings Ltd. GRIN: It is engaged in the ownership and operation of a diversified fleet of owned and long- and short-term chartered-in drybulk vessels. The stock currently carries a VGM Score of A. The Zacks Consensus Estimate for the ongoing-year earnings has moved 4.4% north to $4.52 in a month’s time.



MI Homes, Inc. MHO is one of the leading builders of single-family homes in the United States. It serves a broad segment of the housing market, including first-time, move-up, luxury, and empty-nester buyers. The stock currently flaunts a VGM Score of A. The Zacks Consensus Estimate for the current-year earnings has moved up 32.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 63.3%.



Euroseas Ltd. ESEA was formed under the laws of the Republic of the Marshall Islands to consolidate the ship-owning interests of the Pittas family of Athens, Greece, which has been in the shipping business for the past 140 years. It operates in the container shipping market. At present, the stock sports a VGM Score of A. The Zacks Consensus Estimate for the ongoing-year earnings has been revised 17.5% upward to $6.30 in a month’s time.



Titan Machinery Inc. TITN: The company owns and operates a network of full-service agricultural and construction equipment dealer locations in North America and Europe. The stock currently carries a VGM Score of B. The Zacks Consensus Estimate for fiscal 2022 earnings has moved 9.6% north to $1.95 in two months’ time.



Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.



The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.



Click here to sign up for a free trial to the Research Wizard today.



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.



Zacks' Top Picks to Cash in on Artificial Intelligence

In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.

See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>



Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 

Titan Machinery Inc. (TITN): Free Stock Analysis Report

 

Euroseas Ltd. (ESEA): Free Stock Analysis Report

 

MI Homes, Inc. (MHO): Free Stock Analysis Report

 

Grindrod Shipping Holdings Ltd. (GRIN): Free Stock Analysis Report

 

To read this article on Zacks.com click here.

 

Zacks Investment Research