For Immediate Release
Chicago, IL – July 28, 2023 – Stocks in this week’s article are StoneCo Ltd. STNE, Unum Group UNM, Asbury Automotive Group, Inc. ABG and Magna International Inc. MGA.
4 Low Price-to-Cash Flow Stocks to Buy for Optimum Returns
Investment in stocks made on diligent value analysis is usually considered one of the best practices. In value investing, investors pick stocks that are cheap but fundamentally sound. There are a number of ratios to identify value stocks but none alone can conclusively determine their inherent potential. Each ratio helps an investor understand a particular aspect of the company’s business.
One such ratio, Price to Cash Flow (or P/CF), can work wonders in stock picking if used prudently. This metric evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per share basis — the lower the number, the better. StoneCo Ltd., Unum Group, Asbury Automotive Group, Inc. and Magna International Inc. all boast a low P/CF ratio.
Why P/CF Ratio?
You must be wondering why we are considering this when the most widely used valuation metric is Price/Earnings (or P/E). Well, an important factor that makes P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company’s financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.
However, an investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and take into account the price-to-book ratio, price-to-earnings ratio and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chances of falling into a value trap.
Here are four of the nine stocks that qualified the screening:
StoneCo, a leading provider of financial technology and software solutions, sports a Zacks Rank #1 and has an expected EPS growth rate of 55.2% for three-five years. The company has a trailing four-quarter earnings surprise of 11.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for StoneCo’s current financial year sales and EPS suggests growth of 4.4% and 115.2%, respectively, from the year-ago period. STNE has a Value Score of B. Shares of STNE have rallied 39.1% in the past year.
Unum Group, which provides financial protection benefit solutions, carries a Zacks Rank #2 and has an expected EPS growth rate of 8.4% for three-five years. The company has a trailing four-quarter earnings surprise of 18.6%, on average.
The Zacks Consensus Estimate for Unum Group’s current financial year sales and EPS suggests growth of 2.4% and 20.8%, respectively, from the year-ago period. Unum Group has a Value Score of A. Shares of UNM have gained 53.8% in the past year.
Asbury Automotive Group, which operates as an automotive retailer in the United States, carries a Zacks Rank #2. ABG has a Value Score of A and an expected EPS growth rate of 18.5% for three-five years.
Asbury Automotive Group has a trailing four-quarter earnings surprise of 6.6%, on average. Shares of ABG have rallied 29% in the past year.
Magna International, one of the world’s largest suppliers in the automotive space, carries a Zacks Rank #2. It has an expected EPS growth rate of 20.4% for three-five years. The company delivered an earnings surprise of 16.8% in the last reported quarter.
The Zacks Consensus Estimate for Magna International’s current financial year sales and EPS suggests growth of 8.9% and 20.5%, respectively, from the year-ago period. Magna International has a Value Score of A. Shares of MGA have declined 1.6% in the past year.
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For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2128822/4-low-price-to-cash-flow-stocks-to-buy-for-optimum-returns
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Unum Group (UNM) : Free Stock Analysis Report
Magna International Inc. (MGA) : Free Stock Analysis Report
Asbury Automotive Group, Inc. (ABG) : Free Stock Analysis Report
StoneCo Ltd. (STNE) : Free Stock Analysis Report