Forget the Fed, Bet on These 4 Stocks With Increasing Cash Flows

Investors are keeping a close watch on the Fed this week as it gears up for the rate announcement. Eyes and ears are also on indications of the Fed’s future course of action. However, instead of brooding too much on these and staying on the sidelines, investors can benefit from stocks that are cash cows and offer higher returns.

Cash is the lifeblood of any business. It offers strength, vitality and flexibility to make investment decisions, and the fuel to run its growth engine. Moreover, cash shields a company from market turmoil and indicates that profits are being channeled in the right direction.

In this regard, stocks like Modine Manufacturing Company MOD, Gibraltar Industries, Inc. ROCK, The Andersons, Inc. ANDE and Karat Packaging Inc. KRT are worth buying.

One must go beyond profit numbers and look at a company’s efficiency in generating cash flows to invest in the right stocks. This is because even a profit-making company can have a dearth of cash flow and fail to meet its obligations. However, a company’s resiliency can be fairly judged when its efficacy in generating cash flows is assessed. This holds more relevance in the current context amid uncertainties in the global economy, market disruptions and dislocations, as well as 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, 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 14 stocks that qualified the screening:

Modine Manufacturing operates primarily in a single industry consisting of the manufacturing and selling of heat transfer equipment. These include heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars, trucks, farm and construction machinery and equipment, and heating and cooling equipment for residential and commercial building heating, ventilating, air conditioning and refrigeration equipment.

The Zacks Consensus Estimate for Modine Manufacturing’s fiscal 2024 earnings has moved 24.1% north in the past two months to $2.88 per share. MOD has a VGM Score of A.

Gibraltar Industries manufactures and distributes products to the industrial and buildings market. The products range from ventilation and expanded metal to mail storage solutions and rain dispersion products and solutions.

The Zacks Consensus Estimate for Gibraltar Industries’ 2023 earnings has moved marginally north in the past month to $3.97 per share. ROCK has a VGM Score of A.

The Andersons is a regional grain merchandiser with diversified businesses in agriculture, plant nutrient formulation and distribution, turf product production, railcar marketing and general merchandise retailing that generate revenues. The company maintains grain and production facilities throughout the Midwest, and retail locations in northern and central Ohio.

The Zacks Consensus Estimate for Andersons’ current-year earnings has been revised 3.3% upward in the past week to $3.12 per share. ANDE has a VGM Score of A.

Karat Packaging is a specialty distributor and manufacturer of disposable foodservice products and related items. Its products include food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. The company also offers customized solutions, including product development and design, printing, and logistic services.

The Zacks Consensus Estimate for Karat Packaging’s current-year earnings has moved up nearly 28% to $1.83 per share over the past two months. KRT has a VGM Score of A.
The Andersons, Inc. (ANDE): Free Stock Analysis Report

Gibraltar Industries, Inc. (ROCK): Free Stock Analysis Report

Modine Manufacturing Company (MOD): Free Stock Analysis Report

Karat Packaging Inc. (KRT): Free Stock Analysis Report

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Zacks Investment Research

This article originally appeared on Zacks

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