These Stocks are Low in P/CF to Enhance Your Portfolio
The best way to pick stocks is by using value style. Value investing is about picking stocks that are fundamentally sound, but have been damaged by outside factors. If investors recognize the intrinsic value of companies, such stocks will be able to rebound. Value investing is best for investors who have a long-term view.
There are different valuation metrics to determine a stock’s inherent strength. Still, a random selection of a ratio cannot serve your purpose if you want a realistic assessment of a company’s financial position. The Price to Cash Flow, or P/CF ratio, is one of these key metrics. Signet Jewelers Limited SIG, NRG Energy, Inc. NRG, Unum Group UNM Sterling Infrastructure STRL boast a low P/CF ratio.
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. P/CF is a reliable metric because it adds back noncash charges like depreciation, amortization, and net income to calculate net income. This allows you to truly assess a company’s financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. Cash flow is however reliable. The net cash flow reveals how much money a company generates and how well management uses it.
Positive cash flow indicates an increase in a company’s liquid assets. It allows the company to pay its shareholders, settle its debts, pay its expenses and reinvest in the business. Negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
A decision to invest based solely on the P/CF ratio may not produce the desired results. If you want to identify stocks that are trading at a discounted price, expand your search criteria by considering the price/book ratio, price/to-earnings and price/sales ratio. A favorable Zacks Rank can help you to identify stocks trading at a discount. Value Score The addition of A orB to your search criteria will result in even more results, as they eliminate the risk of falling into value traps.
The Bargain Hunting Strategy
These are the criteria for choosing true value stocks
P/CF lower than or equal to X-Industry Median.
Price higher than or equal to 5. All stocks must trade at least $5, or higher.
Average 20-Day Volume Greater Than 100,000 The stock can be traded easily because of its large trading volume.
P/E using (F1) less or equal to XIndustry Median This parameter narrows down stocks that trade at a discount or are equivalent to its peers.
P/B lower than or equal to X Industry Median: The stock has enough potential to gain if the P/B is lower than the industry average.
P/S less or equal to X Industry Medin The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio the more attractive the stock is.
PEG lower than 1: This ratio takes earnings growth into consideration to determine the stock’s value. The PEG ratio provides a better picture than the P/E. A stock with a value less than 1 means it is undervalued. Investors should be willing to pay less for stocks that have strong earnings growth prospects.
Zacks Rank less or equal to 2 Zacks rank #1 (Strong buy) or #2 (Buy) stocks and are known to outperform regardless of market conditions.
Value Score less than or equals B: Our research shows that stocks with Style Scores A or B combined with Zacks #1 or 2 offer the highest upside potential.
Here are the four stocks that passed the screening.
SignetZacks Rank #1 is awarded to, the world’s largest seller of diamond jewelry. It is expected to grow at 8% per year for the next three-five years. See it here the complete list of today’s Zacks #1 Rank stocks here.
Signet’s average trailing four quarter earnings surprise is 44.8%. SIG’s Value Score is A. In the last year, SIG stock fell 19.5%
NRG Energy The United States operates as an integrated energy company. The Zacks Rank #1 company expects an EPS growth rate in excess of 12.1% over three to five years. NRG Energy has a Value Score (A).
The Zacks Consensus Estimate for NRG Energy’s current financial year sales and EPS suggests growth of 19.8% and 45%, respectively, from the year-ago period. NRG shares fell 22% over the last year.
Unum GroupThe company, which offers financial protection benefits solutions, has a Zacks Rank 2 and an expected EPS growth rate 12.2% over the next three to five years. The average quarterly earnings surprise for the company is 34.9%.
The Zacks Consensus Estimate for Unum Group’s current financial year sales and EPS suggests growth of 0.6% and 43.5%, respectively, from the year-ago period. Unum Group has a value score of A. UNM shares gained 47.3% over the past 12 months.
Sterling InfrastructureZacks Rank #2 has been awarded to, which is involved in transportation, e–infrastructure, building solutions. The company’s expected EPS growth rate is 18% over the next three to five years. On average, the company’s trailing four-quarter earnings surprise is 20%
The Zacks Consensus Estimate for Sterling Infrastructure’s current financial-year sales and EPS suggests growth of 21.2% and 46.1%, respectively, from the year-ago period. Sterling Infrastructure has a value score of A. Stock prices have risen 21.5% in the last year.
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Disclosure: Zacks Investment Research officers, directors, and employees may have short securities or hold options that are mentioned here. A affiliated investment advisory company may also be mentioned in this content.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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NRG Energy, Inc. (NRG) : Free Stock Analysis Report
Unum Group (UNM) : Free Stock Analysis Report
Signet Jewelers Limited (SIG) : Free Stock Analysis Report
Sterling Infrastructure, Inc. (STRL) : Free Stock Analysis Report