It might seem appropriate to lay a wager on stocks based on profit numbers and earnings surprises in this stretch of the current reporting cycle. However, betting on stocks with a healthy cash level can be far more rewarding because although profit is a company’s goal, cash is its lifeblood and a measure of resiliency. This has become all the more important amid uncertainties in the global economy, market disruptions and dislocations, as well as liquidity concerns.
In this regard, stocks like Publicis Groupe S.A. PUBGY, M/I Homes, Inc. MHO, InterDigital, Inc. IDCC and Arcos Dorados Holdings Inc. ARCO are worth buying.
Even a profit-making company can face a dearth of cash flow if its profits are not channeled in the right direction and end up filing for bankruptcy. However, a company with a healthy cash level not only enjoys the flexibility to make decisions, chase potential investments and run its growth engine but also weathers any market mayhem.
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, it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in the 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.
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.
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 industry categories.
Here are our four picks out of the 13 stocks that qualified the screening:
Publicis Groupe S.A. is a global advertising and communications organization, offering a range of services to companies in 100 countries, with particular strength in France, Germany, the United Kingdom, Spain, Italy and North America.
The Zacks Consensus Estimate for Publicis Groupe’s earnings for the current year has moved 6.1% north in the past month. PUBGY currently has a VGM Score of B.
M/I Homes is one of the nation’s leading builders of single-family homes. The company designs, markets, constructs and sells single-family homes and attached townhomes to first-time, move-up, empty-nester and luxury buyers.
The Zacks Consensus Estimate for M/I Homes’ current-year earnings has moved up 34.2% over the past week to $16.88 per share. MHO has a VGM Score of A.
InterDigital is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company is engaged in designing and developing a wide range of advanced technology solutions, which are used in digital cellular, and wireless 3G, 4G and IEEE 802-related products and networks.
The Zacks Consensus Estimate for the company’s 2023 earnings per share has marginally improved to $8.08 from $8.07 over the past two months. IDCC has a VGM Score of B.
Arcos Dorados operates as a franchisee of McDonald’s, with its operations divided in Brazil, the North Latin America division, South Latin America and the Caribbean division. It also runs quick-service restaurants in Latin America and the Caribbean.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 earnings per share has been revised 5.6% upward to 76 cents in the past month. ARCO has a VGM Score of B.
Publicis Groupe SA (PUBGY): Free Stock Analysis Report
InterDigital, Inc. (IDCC): Free Stock Analysis Report
M/I Homes, Inc. (MHO): Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO): Free Stock Analysis Report
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This article originally appeared on Zacks
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