4 stocks with a low price-to-cash flow ratio to buy now

0

The conflict between Russia and Ukraine, supply chain bottlenecks and soaring inflation have dulled the luster of the stock market. Rising crude prices also made things difficult. The Federal Reserve’s biggest challenge now is to rein in soaring inflation, and it is on a path of steady rate hikes to tame it.

Clearly, the Federal Reserve’s hawkish stance calls for a cautious investment strategy. So, as investors rebalance their portfolios, market pundits are betting on value stocks. Investing in stocks made on a diligent analysis of value is generally considered one of the best practices. In value investing, investors choose cheap but fundamentally sound stocks. There are a number of ratios to identify stocks of value, but none alone can conclusively determine their inherent potential.

Each ratio helps an investor understand a particular aspect of the company’s business. Such a report Price to cash flow (or P/CF), can do wonders in stock picking if used with caution. This measure assesses the market price of a stock relative to the amount of cash flow the company generates per share – the lower the number, the better. Vishay Intertechnology, Inc. VSH, Celestica Inc. CLS, ASGN Incorporated ASGN and Patrick Industries, Inc. PATK displays a low P/CF ratio.

Why the P/CF ratio?

You must be wondering why we are considering this when the most widely used valuation measure is price/earnings (or P/E). Well, one of the important factors that makes P/CF a very reliable measure is that operating cash flow adds non-cash charges like depreciation and amortization to net profit, truly diagnosing financial health. from a company.

Analysts warn that a company’s earnings are subject to accounting estimates and management manipulation. Again, the cash flows are quite reliable. Net cash flow reveals how much cash a company generates and how efficiently management deploys it.

A positive cash flow indicates an increase in the company’s liquidity. This gives the company the means to settle its debts, meet its expenses, reinvest in the company, withstand downturns and finally take actions favorable to shareholders. A negative cash flow implies a decrease in the company’s liquidity, which, in turn, reduces its flexibility to support these efforts.

However, an investment decision based solely on the P/CF metric may not yield the desired results. To identify stocks that are trading at a discount, you should broaden your search criteria and consider price-to-book ratio, price-to-earnings ratio, and price-to-sales ratio. Added a favorable Zacks rank and a Value Rating of A or B to your search criteria should lead to even better results because these eliminate the chances of falling into a value trap.

The bargain hunting strategy

Here are the real value stock selection parameters:

P/CF less than or equal to the X-Industry median.

Price greater than or equal to 5: The stocks must all trade at a minimum of $5 or more.

Average volume over 20 days greater than 100,000: Substantial trading volume ensures that the stock is easily tradable.

P/E using (F1) less than or equal to X-Industry Median: This setting preselects stocks that are trading at a discount or equal to its peers.

P/B less than or equal to the X-Industry median: A lower P/B relative to the industry average implies that there is enough room for the stock to win.

P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock’s price compares to the company’s sales – the lower the ratio, the more attractive the stock.

PEG less than 1: The ratio is used to determine the value of a stock taking into account the company’s earnings growth. The PEG ratio gives a more complete picture than the P/E ratio. A value below 1 indicates the stock is undervalued and investors should pay less for a stock that offers strong earnings growth prospects.

Zacks rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform regardless of the market environment.

Value score less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the most upside potential.

Here are four of the 15 actions that qualified the screening:

Vishay Intertechnology, which manufactures and supplies discrete semiconductors and passive electronic components, holds a No. 2 Zacks rank and has an expected EPS growth rate of 22.7% over three to five years. The company has an earnings surprise for the last four quarters of 5% on average. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks’ consensus estimate for VSH’s current year sales and EPS suggests growth of 6.8% and 15.5%, respectively, over the prior year period. Vishay Intertechnology has a value score of A. Shares of VSH have fallen 16.2% over the past year.

celestial, a leader in designing, manufacturing and supply chain solutions for the world’s most innovative companies, holds a Zacks No. 2 ranking. It has an expected EPS growth rate of 15.4% over three at five years old. The company has a four-quarter earnings surprise of 12.6% on average.

Zacks’ consensus estimate for Celestica’s current year sales and EPS suggests growth of 16.5% and 29.2%, respectively, over the prior year period. CLS has a value score of A. The stock has climbed 33.1% over the past year.

ASGN Incorporated, a leading provider of IT services and solutions, including technology and creative digital marketing, holds a Zacks #2 ranking. It has an expected EPS growth rate of 15.5% over three to five year. ASGN Incorporated has a four-quarter earnings surprise of 10.2% on average.

Zacks’ consensus estimate for ASGN’s current year sales and EPS suggests growth of 9.1% and 20.8%, respectively, over the prior year period. ASGN has a value score of B. The stock is down 11.8% over the past year.

patrick industries, a leading provider of component solutions for the RV, marine, manufactured home and various industrial markets, holds a Zacks #2 ranking and has an expected EPS growth rate of 6.3% over three at five years old. Patrick Industries has a surprise on earnings for the last four quarters of 34.5% on average.

Zacks’ consensus estimate for Patrick Industries’ current year sales and EPS suggests growth of 17.3% and 33.1%, respectively, over the prior year period. Patrick Industries has a value score of A. PATK shares have fallen 28.2% over the past year.

You can get the rest of the stocks on this list by signing up for your free 2-week trial to Research Assistant now and start using this screen in your own trading. Moreover, you can also create your own strategies and test them before diving into investing.

The research assistant is a great starting point. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your search assistant trial today. And the next time you’re reading an economic report, open up the research assistant, plug in your findings, and see what gems come out.

Click here to sign up for a free trial of Research Assistant 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 the options mentioned herein. An affiliated investment adviser may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.

Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance.

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

To read this article on Zacks.com, click here.

Zacks Investment Research

Share.

About Author

Comments are closed.