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In the midst of earnings season, it may be worth watching the spread between earnings per share and operating cash flow, according to UBS.
“Earnings have generally moved closely with operating cash flow, but earnings have increased by far more than OCF last year outside of Fins/Ener as companies have accrued fewer expenses and working capital has increased,” strategist Keith Parker wrote in a note. “Reconnecting to operating cash flow, a move of possibly more reliable profitability, would point to an earnings drop of ~15% for S&P (SP500) (NYSEARCA:SPY) (FLIGHT) (SPLG) ex fins (Four. Five)/Jan (XLE).”
“With the median accrual (earnings difference-OCF) at an all-time high pointing to broad EPS risk, the high vs. low accrual spread is also close to the widths, making accruals a factor.” critical for identifying relative risk to earnings or resilience among stocks.
“Our ‘earn-at-risk’ screen uses the reverse criteria of high buildups in the top 15% and weaker P/E/revisions up,” Parker said.
The screen covers S&P 1500 (SPTM) stocks, sector neutral with a market capitalization of at least $3B and excludes Finance and Energy.
The profit stocks at risk are:
- Dish Network (DISH)
- Paramount Global (PARA)
- Fox Factory (FOXF)
- Pulte Group (PHM)
- KB Home (KBH)
- Merit Housing (MTH)
- Brands Newell (NWL)
- Dominican Republic Horton (DHI)
- Pool Corp.
- Lithia Motors (LAD)
- McCormick (MKC)
- Tyson Foods (TSN)
- Pilgrim’s Pride (PPC)
- Halliburton (HAL)
- VMS (VMS)
- november (november)
- Maximum (MASI)
- Twilight (PEN)
- Azenta (AZTA)
- Zoetis (ZTS)
- Organon (OGN)
- modern (mRNA)
- Terex (TEX)
- Stanley Black & Decker (SWK)
- Lennox International (LII)
- EnerSys (ENS)
- Generac Holdings (GNRC)
- Pentair (PNR)
- Univar Solutions (UNVR)
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- Qualcomm (QCOM)
- Theradine (TER)
- Lam Research (LRCX)
- Silicon Laboratories (SLAB)
- Monolithic Power Systems (MPWR)
- National Instruments (NATI)
- Arrow Electronics (ARW)
- Vontier (VNT)
- Cabot (CBT)
- Reliance Steel and Aluminum (RS)
- Ball Corp. (BALL)
- RGU (RGU)
- OGE Energy (OGE)
- Needle (SR)
- Alet (ALE)
See stocks de-risked from gains.
