Look Beyond Earnings: Bet on 4 Stocks With Rising Cash Flows

About this update from Sumitomo Chemical India Ltd.

Investors can be lured by profits and earnings surprises in the ongoing reporting cycle. However, during this earnings season and beyond, betting on stocks with a healthy cash level can be far more rewarding because cash is the lifeblood of a company’s existence, a measure of resiliency and a revelation of its true financial health.In this regard, stocks such as Sumitomo Corporation SSUMY, Mission Produce, Inc. AVO, Flexsteel Industries, Inc. FLXS and FreightCar America, Inc. RAIL are worth buying.Even after reaping profits, a company can face a dearth of cash flow and be bankrupt while meeting its obligations if its profits are not channeled in the right direction. However, a company with adequate cash flows can effectively tide over any market mayhem while enjoying flexibility in decision-making and chasing potential investments.Analyzing a company’s cash-generating efficiency has indeed become more relevant amid uncertainties in the global economy, market disruptions and dislocations. Studying a company’s ability to produce cash is important not only for protecting your money but also for multiplying it.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 implie...

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