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Forget Profit, Pick These 4 Stocks With Increasing Cash Flows

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We are in one of the busiest weeks of the current reporting cycle, and betting on stocks based on profit numbers and earnings surprises is in trend. But looking beyond profits and figuring out a company’s cash position can be far more rewarding.

In this regard, stocks like Limbach Holdings, Inc. (LMB - Free Report) , DXP Enterprises, Inc. (DXPE - Free Report) , Lands' End, Inc. (LE - Free Report) and Euroseas Ltd. (ESEA - Free Report) are worth buying.

Even though profit is a company’s goal, cash is necessary for its existence, development and success, and it is indeed a measure of resiliency. Even a profit-making company can face cash trouble and end up being bankrupt while meeting its obligations. However, a company with a solid cash flow can endure any market mayhem while enjoying flexibility in decision-making, chasing potential investments and fueling its growth engine.

Assessing a company's cash-generating efficiency has become increasingly important in today’s environment, marked by global economic uncertainties, market disruptions and liquidity challenges stemming from geopolitical tensions.

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. 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 industry categories.

Here are four out of 10 stocks that qualified for the screening:

Limbach Holdings provides building systems. The company engineers, constructs and services mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems.

The Zacks Consensus Estimate for Limbach Holdings’ 2024 earnings has moved 2.5% north in the past two months. LMB has a VGM Score of A.

DXP Enterprises provides innovative pumping solutions, supply-chain services, and maintenance, repair, operating and production services.

The consensus estimate for DXP Enterprises’ current-year earnings has been revised 12.7% upward over the past two months. DXPE has a VGM Score of B.

Lands' End, Inc. operates as a multi-channel retailer. LE offers men's, women's and kids' apparel, outerwear and swimwear, specialty apparel, accessories, footwear and home products. 

The Zacks Consensus Estimate for Lands' End’s fiscal 2025 earnings has moved up by 23.3% in the past two months. LE has a VGM Score of A.

Euroseas 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 last 136 years. It operates in the dry cargo, dry bulk and container shipping markets.

The Zacks Consensus Estimate for Euroseas’ current-year earnings has moved 13.7% north in the past two months. ESEA currently has a VGM Score of A.

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.

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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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