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Zacks.com Featured Expert Kevin Matras Highlights: NRG Energy, Open Text, PartnerRe, Sanofi-aventis and Triumph Group

^{Published on 2009-01-14 14:07:25, Last Modified on 2009-01-14 14:08:58 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Kevin Matras shows how to search for stocks with increasing Cash Flows, but low Price-to-Cash Flow ratios. Stocks in this week's article include NRG Energy Inc. (NYSE: NRG), Open Text Corporation (NASDAQ: OTEX), PartnerRe Ltd. (NYSE: PRE), Sanofi-aventis (NYSE: SNY) and Triumph Group (NYSE: TGI). Click here for the full story exclusively on Zacks.com: [ http://at.zacks.com/?id=109 ]

Screen of the Week written by Kevin Matras of Zacks Investment Research:

Lately, I've been running screens to try and assess a company's real value.

The Price-to-Earnings ratio, or P/E, is probably the most common ratio in determining whether a company is under 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, especially nowadays. And cash can't really be manipulated on the Income Statement like earnings can.

The reason why some like the P/CF measurement better than the P/E ratio is because the net income of the Cash Flow portion rightly adds back depreciation and amortization, 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.

So many analysts prefer using the Price to Cash Flow metric to judge a stock's value.

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 the stocks in the S&P 500 is roughly 9. For the P/E ratio it's 12. But like the P/E ratio, a value of less than 20 is considered good.

However, make sure you compare the stock's P/CF to its Industry, as different Industries will have different numbers that are considered normal.

Screen

The screen I'm running today is relatively simple.

• Zacks Rank less than or equal to 2
  (Only Buys and Strong Buys get thru.)

• One Year Projected Growth Rate greater than or equal to Average for the S&P 500
  (Looking for above market growth rates.)

• Current Cash Flow greater than or equal to 5 Year Average Cash Flow
  (I want to see the Company's cash position improving.)

• Price to Cash Flow less than or equal to Median for its Industry
  (Want to see Companies with valuations lower than the median for their respective groups.)

Start looking for value stocks in new ways with this week's screen. 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. Don'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.

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