Chicago, IL – October 17, 2023 – Stocks in this week’s article are Select Medical Holdings Corp. SEM, Marathon Oil Corp. MRO, PVH Corp. PVH and KB Home KBH.
We always try to hit the jackpot while picking stocks. But striking the right chord each time is not easy unless blessed with Midas touch. When it comes to the investment market, experts consider value style as one of the most effective approaches. Value investing is essentially about selecting stocks that have good things going on for them, even at a time when they have been beaten down by some external factors.
There are different valuation metrics to determine a stock’s inherent strength but a random selection of ratios cannot serve your purpose if you want a realistic assessment of a company’s financial position. For this, we recommend Price to Cash Flow (or P/CF) as one of the key metrics. 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. Select Medical Holdings Corp., Marathon Oil Corp., PVH Corp. and KB Home boast a low P/CF ratio.
Questions may arise as to why we are considering the Price to Cash Flow valuation metric, when the most widely used metric is Price/Earnings (or P/E). Well, what makes P/CF stand out is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly reflecting the financial health of a company.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. However, cash flow is reliable. It is net cash flow that reveals how much money a company is actually generating and how effectively management is putting the same to use.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, shell out for its expenses, reinvest in its business, endure downturns and finally pay back its shareholders. Then again, a negative cash flow implies a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
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 also 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.
Here are four of the eight stocks that qualified the screening.
Select Medical Holdings, one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers, sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Select Medical Holdings’ current financial year sales and EPS suggests growth of 4.2% and 56.9%, respectively, from the year-ago period. SEM has a Value Score of A. Shares of SEM have risen 0.9% in the past year.
Marathon Oil, an independent oil and gas exploration and production company, carries a Zacks Rank #2. MRO has a Value Score of A.
The Zacks Consensus Estimate for Marathon Oil’s current financial year sales and EPS suggests a decline of 16.7% and 40.2%, respectively, from the year-ago period. MRO has a trailing four-quarter earnings surprise of 10.8%, on average. Shares of MRO have increased 3.4% in the past year.
PVH Corp., which operates as an apparel company, carries a Zacks Rank #2. The company came up with a trailing four-quarter earnings surprise of 22.8%, on average.
The Zacks Consensus Estimate for PVH’s current financial year sales and EPS suggests growth of 3.7% and 15.2%, respectively, from the year-ago period. PVH has a Value Score of A. Shares of PVH have gained 41.4% in the past year.
KB Home, one of the largest and most recognized homebuilders in the United States, carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 26.7%, on average.
The Zacks Consensus Estimate for KB Home's current financial year sales and EPS suggests a decline of 8.2% and 24.1%, respectively, from the year-ago period. KBH has a Value Score of A. Shares of KBH have gained 61.2% 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/2166318/unlock-the-value-of-your-portfolio-with-4-low-pcf-stocks
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