The U.S. stock market extended its winning streak on Friday, rising for the fourth consecutive trading session, propelled by robust performance in the technology sector and progress in trade talks. The S&P 500 advanced 0.7% to 5,525.21, while the Nasdaq Composite surged 1.3% to 17,382.94. The Dow Jones Industrial Average saw a modest increase of 0.05% to 40,113.50.

Investor sentiment was buoyed by strong quarterly earnings reports and speculation that current tariff policies might see revisions. Earlier this month, President Trump announced a 90-day hiatus on broad "reciprocal" tariffs, initiating negotiations with several countries.

Despite recent gains, uncertainty surrounding tariffs remains a key factor influencing the future economic outlook. In this environment, value stocks could emerge as an attractive investment choice. Often priced below their intrinsic value, these stocks offer a margin of safety that appeals particularly during periods of market uncertainty.

When evaluating value stocks, one of the most effective valuation metrics is the Price to Cash Flow (P/CF) ratio. Companies like StoneCo Ltd. STNE, Carriage Services, Inc. CSV, Associated Banc-Corp ASB and Pfizer Inc. PFE boast a low P/CF ratio. The P/CF ratio 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.

Price to Cash Flow Reflects Financial Health

You must be wondering why we consider the P/CF valuation metric when the most widely used valuation metric is Price/Earnings (or P/E). An important factor 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. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.

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

What’s the Best Value Investing Strategy?

An investment decision based solely on the P/CF metric may not yield 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 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 their 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 a Zacks Rank #1 or 2 offer the best upside potential.

Here are four of the 14 value stocks that qualified the screening:

Stone, a leading provider of financial technology and software solutions, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 5.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Stone’s current financial year sales suggests growth of 4.1% from the year-ago period. STNE has a Value Score of B. Shares of STNE have fallen 15.1% in the past year.

Carriage Services, a leading provider of funeral and cemetery services and merchandise in the United States, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 27.5%, on average.

The Zacks Consensus Estimate for Carriage Services’ current financial year sales and earnings per share (EPS) suggests growth of 0.9% and 21.1%, respectively, from the year-ago period. CSV has a Value Score of B. Shares of CSV have rallied 53.8% in the past year. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

Associated Banc-Corp, the largest bank holding company based in Wisconsin, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 4.2%, on average.

The Zacks Consensus Estimate for Associated Banc-Corp’s current financial year sales and EPS implies growth of 9.9% and 2.9%, respectively, from the year-ago period. ASB has a Value Score of B. Shares of ASB have risen 7.5% in the past year. 

Pfizer, which develops, manufactures, markets, distributes and sells biopharmaceutical products, carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 44.2%, on average.

The Zacks Consensus Estimate for Pfizer’s current financial year sales and EPS suggests a decline of 0.2% and 3.9%, respectively, from the year-ago period. Pfizer has a Value Score of A. Shares of PFE have fallen 5% in the past year.

You can get the rest of the stock 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 back test 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.

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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 is available at: https://www.zacks.com/performance.

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Pfizer Inc. (PFE):Free Stock Analysis Report

Carriage Services, Inc. (CSV):Free Stock Analysis Report

Associated Banc-Corp (ASB):Free Stock Analysis Report

StoneCo Ltd. (STNE):Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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