The Fed's recent rate cut has generated a surge of optimism on Wall Street. However, current trends suggest there is still some anxiety about a potential recession ahead. Amid this, investors mostly prefer to flock to companies that earn profits. But even a profitable business can succumb to failure if its cash flow is uneven and, eventually, file for bankruptcy. 

However, one can effectively judge a company’s resilience by looking at its efficiency in generating cash flow. This is because cash not only shields it from any market mayhem but also indicates that its profits are being channeled in the right direction.

In this regard, stocks like Limbach Holdings, Inc. LMB, DXP Enterprises, Inc. DXPE, Willdan Group, Inc. WLDN and Euroseas Ltd. ESEA are worth buying.

In fact, if achieving profit is a company’s goal, then having a healthy cash flow is highly essential for its existence, development and success. This is because cash gives a company more flexibility with respect to business decisions and potential investments, as well as the fuel to run its growth engine. Cash, in fact, indicates a company’s true financial health. This efficiency holds more relevance in the current context amid uncertainties in the global economy, market disruptions and dislocations.

To figure out this efficiency, one needs to consider a company’s net cash flow. While in any business, cash moves in and out, it is net cash flow that explains how much money a company is actually generating.

If a company is experiencing a positive cash flow, it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in the business, endure downturns and finally return wealth to shareholders. On the other hand, a negative cash flow indicates a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.

However, having a positive cash flow merely does not secure a company’s future growth. To ride on the growth curve, a company must have its cash flow increasing because that indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running its business.

Therefore, keep yourself abreast with the following screen to bet on stocks with rising cash flows.

Screening Parameters:

To find stocks that have seen increasing cash flow over time, we ran the screen for those whose cash flow in the latest reported quarter was at least equal to or greater than the 5-year average cash flow per common share. This implies a positive trend and increasing cash over a period of time.

In addition to this, we chose:

Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

Average Broker Rating 1: This indicates that brokers are also highly hopeful about the company’s future performance.

Current Price greater than or equal to $5: This sieves out low-priced stocks.

VGM Score of B or better: This score is also of great assistance in selecting stocks. Importantly, this scoring system helps in picking winning stocks in their industry categories.

Here are four out of 13 stocks that qualified the screening:

Limbach Holdings provides building systems. The company engineers, constructs and services mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems.

The Zacks Consensus Estimate for Limbach Holdings’s 2024 earnings has moved 2.5% north in the past month to $2.43 per share. LMB sports a VGM Score of A.

DXP Enterprises provides innovative pumping solutions, supply-chain services, as well as maintenance, repair, operating and production services.

The consensus estimate for DXP Enterprises’ current-year earnings has been revised 12.7% upward to $3.56 over the past month. DXPE has a VGM Score of B.

Willdan Group is a provider of professional technical and consulting services to utilities, private industry and public agencies at all levels of government. WLDN enables its clients to realize cost and energy savings by providing a wide range of specialized services.

The Zacks Consensus Estimate for its current-year earnings has improved 12.3% over the past two months to $2.10. WLDN has a VGM Score of A.

Euroseas was formed under the laws of the Republic of the Marshall Islands to consolidate the ship-owning interests of the Pittas family of Athens, Greece, which has been in the shipping business for the last 136 years. It operates in the dry cargo, dry bulk and container shipping markets.

The Zacks Consensus Estimate for Euroseas’ current-year earnings has moved 36.5% north in the past two months. ESEA currently has a VGM Score of B.

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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.