6 Stocks Reaching New Highs on Strong Operating Cash Flows

|
 |  Includes: DIOD, DNR, ENSG, SSW, VDSI, WES
by: Kapitall

If you're a momentum investor looking for interesting ideas, the following list might be a good place to start. All of these companies have reached 52-week highs during recent sessions, and all of them have seen operating cash flows accelerate faster than net income during the most recent quarter.

Operating cash flow is arguably a better measure of a business's profits than earnings. Given the trends mentioned below, some might think these companies are set for a further rally. Do you agree?

To create this list, we started with a universe of stocks reaching new highs. We then crunched the numbers on their financials, and identified a list of companies that have seen a big jump in their operating cash flow growth relative to net income growth during the most recent quarter. (Note: For this screen, we use the equation Operating Cash Flow = EBIT + Depreciation - Taxes).

Financials data sourced from Google Finance, short float and performance data sourced from Finviz.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

1. Western Gas Partners Lp (NYSE:WES): Oil and Gas Pipelines Industry. Market cap of $2.7B.

Net Income grew by 25.22% ($31.5M vs. $25.1M y/y), while Operating Cash Flow grew by 26.65% ($54.5M vs. $43.0M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 1.24%, which implies a short ratio of 1.82 days. The stock has gained 75.69% over the last year.

Other Highlights:

- It's also worth pointing out that the company has a track record of outperforming its competitors. Over the last five years, EPS grew by 47.11%, higher than the industry average at 1.94%, while revenues grew by 24.74%, outperforming the industry average at 11.04%.

- The company has demonstrated rapid cash flow growth over the last five years, which may lower its risk going forward. Five year average cash flow growth at 33.47%, much higher than the industry average at 8.8%.

- Insiders appear to be optimistic on the outlook for the company. On a net basis, they've purchased an average of 59,193 shares per year (over last 2 years).

2. Diodes Incorporated (NASDAQ:DIOD): Semiconductor Industry. Market cap of $1.36B.

Net Income grew by 68.68% ($24.0M vs. $14.2M y/y), while Operating Cash Flow grew by 75.00% ($27.2M vs. $15.6M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31).

Short float at 4.58%, which implies a short ratio of 6.29 days. The stock has gained 48.24% over the last year.

Other Highlights:

- The company outperformed analyst earnings estimates during the most recent quarter, suggesting that the analyst community is underestimating the stock. The company reported earnings per share of $0.55 per share, and exceeded the First Call Consensus of $0.50 (Q4 Earnings on 02/09/11). The company also outperformed analyst estimates over the last year, reporting earnings per share at $1.82, beating the consensus view at $1.77 (based on the estimates of 9 analysts).

3. The Ensign Group, Inc. (NASDAQ:ENSG): Long-Term Care Facilities Industry. Market cap of $553.16M.

Net Income grew by 28.61% ($9.9M vs. $7.7M y/y), while Operating Cash Flow grew by 35.37% ($16.4M vs. $12.1M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 3.84%, which implies a short ratio of 4.81 days. The stock has gained 54.23% over the last year.

Other Highlights:

- Judging by trailing 12-month (NYSE:TTM) ratios like Return on Equity (ROE), Return on Assets (ROA) and Return on Invested Capital (NYSE:ROI), it's clear that the company's management is doing an excellent job. TTM ROE at 18.59%, lower than the industry average at 18.75%, TTM ROA at 9.21% vs. the industry average at 6.47%, and TTM ROI at 12.09%, higher than the industry average at 10.83%. The company also outperformed its industry competitors in terms of the TTM Return on Sales ratio (6.02% vs. the industry average at 4.35%).

- Institutional and mutual fund investors have been net purchasers of the company's shares over the last two quarters, suggesting that the smart money thinks there's more upside to the stock. Institutional investors have been net buyers of 1.2M shares during the most recent quarter, vs. 1.3M net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 304.5K shares during the most recent quarter, vs. 286.2K net shares purchased in the previous quarter.

4. VASCO Data Security International Inc. (NASDAQ:VDSI): Security Software and Services Industry. Market cap of $314.67M.

Net Income grew by 43.42% ($2.2M vs. $1.5M y/y), while Operating Cash Flow grew by 68.93% ($1.7M vs. $1.0M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 3.32%, which implies a short ratio of 10.4 days. The stock has gained 4.5% over the last year.

Other Highlights:

- The company's capital spending accelerated by 53.81% over the last five years, much faster than the industry average of 17.48%. At least theoretically, this makes them more competitive over the coming years, since their operational assets are more up-to-date.

5. Seaspan Corp. (NYSE:SSW): Shipping Industry. Market cap of $1.11B.

Net Income grew by 7.46% (-$70.9M vs. -$66.0M y/y), while Operating Cash Flow grew by 54.71% ($79.6M vs. $51.4M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 2.16%, which implies a short ratio of 4.65 days. The stock has gained 66.02% over the last year.

Other Highlights:

- Analysts expect the company to generate higher than normal earnings growth in the future. EPS growth for the next year is projected at 34.23%, higher than the industry average at 8.65%. EPS growth over the next five years projected at 25.33%, vs. the industry average at 11.22%.

- Over the last year, the company has proven itself to be more profitable than its industry competitors. Trailing 12-month (TTM) gross margin at 72.32%, higher than the industry average at 62.45%. TTM EBITD margin at 69.93% vs. industry average at 54.04%, while TTM operating margin came in at 45.38%, higher than the industry average at 35.26%.

- Institutional and mutual fund investors have been net purchasers of the company's shares over the last two quarters, suggesting that the smart money thinks there's more upside to the stock. Institutional investors have been net buyers of 1.2M shares during the most recent quarter, vs. 534.1K net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 17.8K shares during the most recent quarter, vs. 186.2K net shares purchased in the previous quarter.

6. Denbury Resources Inc. (NYSE:DNR): Independent Oil and Gas Industry. Market cap of $9.18B.

Net Income grew by 8.22% ($29.1M vs. $26.9M y/y), while Operating Cash Flow grew by 77.63% ($142.8M vs. $80.4M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 4.13%, which implies a short ratio of 4.55 days. The stock has gained 54.12% over the last year.

Other Highlights:

- The company's capital spending accelerated by 44.98% over the last five years, much faster than the industry average of 19.94%. At least theoretically, this makes them more competitive over the coming years, since their operational assets are more up-to-date.

- Over the last year, the company has proven itself to be more profitable than its industry competitors. Trailing 12-month (TTM) gross margin at 56.49%, higher than the industry average at 36.41%. TTM EBITD margin at 56.49% vs. industry average at 30.6%, while TTM operating margin came in at 32.55%, higher than the industry average at 16.35%. The company also outperformed with its pretax margin, reporting a ratio of 29.85%, higher than the industry average at 15.8%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.