Advertisement
New Zealand markets closed
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NZD/USD

    0.5975
    -0.0001 (-0.01%)
     
  • NZD/EUR

    0.5538
    +0.0005 (+0.09%)
     
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • OIL

    83.11
    -0.06 (-0.07%)
     
  • GOLD

    2,254.80
    +16.40 (+0.73%)
     
  • NASDAQ

    18,254.69
    -26.15 (-0.14%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • Dow Jones

    39,807.37
    +47.29 (+0.12%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,336.77
    +168.70 (+0.42%)
     
  • NZD/JPY

    90.3710
    -0.0220 (-0.02%)
     

Pick These 4 Low P/CF Stocks to Uplift Your Portfolio

Value style is considered one of the best practices when it comes to picking stocks. Value investing is essentially about selecting stocks that are fundamentally sound but have been beaten down by some external factors. Such stocks are poised to bounce back as and when investors recognize the inherent value of companies. Certainly, the value investment strategy best suits investors with a long-term horizon.

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. For this, the Price to Cash Flow (or P/CF) ratio is one of the key metrics. APi Group Corporation APG, Signet Jewelers Limited SIG, Sterling Infrastructure STRL and EPR Properties EPR 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. One of the important factors 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. However, cash flow is reliable. Net cash flow unveils how much money a company is actually generating and how effectively management is deploying the same.

Positive cash flow indicates an increase in a company’s liquid assets. It gives the company the means to settle debt, meet its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.

However, solely based on the P/CF metric, an investment decision may not fetch the desired results. To identify stocks trading at a discount, you should expand your search criteria and consider 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 chance of falling into a value trap.

The Bargain Hunting Strategy

Here are the parameters for selecting true value stocks:

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

Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.

Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.

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

P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.

P/S less than or equal to X-Industry Median: 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 less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio gives a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.

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

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

Here are four of the seven stocks that qualified the screening:

APi Group is a market-leading business services provider of life safety, security and specialty services. This Zacks Rank #1 company has an expected EPS growth rate of 17% for three-five years. APG has a Value Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for APi Group’s current financial year sales and EPS suggests growth of 4.8% and 12%, respectively, from the year-ago period. The company has a trailing four-quarter earnings surprise of 4.6%, on average. Shares of APG have risen 14.2% in the past year.

Signet, the world's largest retailer of diamond jewelry, carries a Zacks Rank #2. It has an expected EPS growth rate of 8% for three-five years.

Signet has a trailing four-quarter earnings surprise of 44.8%, on average. SIG has a Value Score of A. The stock has increased 6.8% in the past year.

Sterling Infrastructure, which is engaged in transportation, e-infrastructure and building solutions, carries a Zacks Rank #2. It has an expected EPS growth rate of 18% for three-five years. The company has a trailing four-quarter earnings surprise of 19.3%, on average.

The Zacks Consensus Estimate for Sterling Infrastructure’s current financial-year EPS suggests growth of 10.8% from the year-ago period. Sterling Infrastructure has a Value Score of A. The STRL stock has jumped 44.2% in the past year.

EPR Properties, the leading diversified experiential net lease real estate investment trust, carries a Zacks Rank #2 and has an expected EPS growth rate of 9% for three-five years. The company has a trailing four-quarter earnings surprise of 3.8%, on average.

The Zacks Consensus Estimate for EPR Properties’ current financial year sales suggests growth of 0.8% from the year-ago period. EPR Properties has a Value Score of B. Shares of EPR have declined 23% in the past year.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard 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 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.

ADVERTISEMENT

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

Signet Jewelers Limited (SIG) : Free Stock Analysis Report

Sterling Infrastructure, Inc. (STRL) : Free Stock Analysis Report

EPR Properties (EPR) : Free Stock Analysis Report

APi Group Corporation (APG) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research