House & Home
House and Home
House and Home
Wed, October 13, 2010
Tue, October 12, 2010
Archer-Daniels-Midland Co., BHP Billiton Ltd., The Cooper Companies, Inc., Republic Airways Holdings Inc. and Union Pacific Cor
CHICAGO--([ BUSINESS WIRE ])--Stocks in this weeka™s article include: Archer-Daniels-Midland Co. (NYSE: [ ADM ]), BHP Billiton Ltd. (NYSE: [ BHP ]), The Cooper Companies, Inc. (NYSE: [ COO ]), Republic Airways Holdings Inc. (NASDAQ: [ RJET ])and Union Pacific Corp. (NYSE: [ UNP ]). Kevin Matras shows how to search for stocks with increasing Cash Flows, but low Price to Cash Flow ratios.
Screen of the Week written by Kevin Matras of Zacks Investment Research:
The Price to Earnings ratio, or P/E, is probably the most common ratio in determining whether a company is undervalued or overvalued. However, the Price to Cash Flow, or P/CF, is another great ratio to do just that.
Cash of course is vital to a company's financial health. This is especially true nowadays, as it is needed to finance operations, invest in the business, etc. And cash can't really be manipulated on the income statement like earnings can.
The reason why some like this measurement better than the P/E ratio is because the net income of the Cash Flow portion rightly adds depreciation and amortization back in, since these are not cash expenditures. Whereas the net income that goes into the Earnings portion of the P/E ratio does not add these in, thus artificially reducing the income and skewing the P/E ratio.
Many analysts prefer using the Price to Cash Flow metric to judge a stock's value.
And just like the P/E ratio is calculated by dividing the Price by its Earnings per share -- the Price to Cash Flow ratio is calculated by dividing the Price by its Cash Flow per share. Also like a P/E ratio, the lower the number, the better.
Currently, the average Price to Cash Flow (P/CF) for S&P 500 stocks is 13.27. Just like the P/E ratio, a value of less than 15 to 20 is generally considered good.
In my testing, I have found that a P/CF between 0-10 produced the best results (17.1% over the last 10 years -- 2/2000 thru 2/2010 using a 1-week rebalancing period). The second best results came with the range of 10-20 at a 10.2% gain. However, once you get over 30, the odds point to a loss (-2.8%). And over 40, the odds of loss are even bigger at -6.9%.
This being said though, I still recommend comparing a stock's P/CF to its Industry, as different Industries will have different numbers that are considered normal.
For the rest of this Screen of the Week article, please visit Zacks.com at:[ http://www.zacks.com/commentary/15942/ ]
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Dona™t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: [ http://at.zacks.com/?id=111 ]
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here [ http://at.zacks.com/?id=112 ]
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros [ http://at.zacks.com/?id=113 ]
Follow us on Twitter: [ http://twitter.com/zacksresearch ]
Join us on Facebook: [ http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts ]
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Visit [ http://www.zacks.com/performance ] for information about the performance numbers displayed in this press release.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
