6 Breakout Stocks With Strong Operating Cashflow

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Includes: APEI, FRT, GOV, LUV, SNH, VRX
by: Kapitall

Here is a list of stocks that have recently seen the SMA50 move above the SMA200 (a bullish signal called the "Golden Cross"). Additionally, all of these companies have seen operating cash flows accelerate faster than net income during the most recent quarter.

To create this list, we started with a list of stocks that have seen the SMA50 move above the SMA200 during recent sessions. 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).

Operating cash flow is arguably a better measure of a business's profits than earnings. Given the trends mentioned above, some might think these companies will continue to grind higher. Do you agree?

Financials data sourced from Google Finance.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top 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. Government Properties Income Trust (NYSE:GOV): REIT. Market cap of $1.07B. SMA50 at $26.20 vs. SMA200 at $25.71 (current price at $26.35).

Net Income grew by 20.66% ($6.5M vs. $5.4M y/y), while Operating Cash Flow grew by 46.54% ($16.3M vs. $11.1M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31).

Short float at 2.48%, which implies a short ratio of 4.18 days. The stock has gained 18.54% over the last year.

Other Highlights:

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 624.3K shares during the most recent quarter, vs. 6.7M net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 1.8M shares during the most recent quarter, vs. 663.2K net shares purchased in the previous quarter.

2. American Public Education, Inc. (NASDAQ:APEI): Business Services Industry. Market cap of $769.66M. SMA50 at $36.85 vs. SMA200 at $36.16 (current price at $42.6).

Net Income grew by 14.68% ($9.6M vs. $8.4M y/y), while Operating Cash Flow grew by 18.34% ($11.4M vs. $9.7M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31).

Short float at 9.62%, which implies a short ratio of 9.5 days. The stock has lost -1.86% 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 20.00%, higher than the industry average at 12.09%. EPS growth over the next five years projected at 24.25%, vs. the industry average at 13.52%.

The company has demonstrated rapid cash flow growth over the last five years, which may lower their risk going forward. Five year average cash flow growth at 52.49%, much higher than the industry average at 13.54%.

3. Southwest Airlines Co. (NYSE:LUV): Regional Airlines Industry. Market cap of $8.79B. SMA50 at $12.62 vs. SMA200 at $12.43 (current price at $11.75).

Net Income grew by 13.91% ($131.0M vs. $115.0M y/y), while Operating Cash Flow grew by 16.67% ($294.0M vs. $252.0M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31).

Short float at 2.43%, which implies a short ratio of 2.68 days. The stock has lost -5.24% over the last year.

Other Highlights:

The company has low debt and great liquidity, which significantly reduces its risk over the coming months. During the most recent quarter, the total Debt/Assets ratio stood at 21.86% vs. the industry average at 35.99%. The company also appears to be more liquid than its competitors. The TTM Current Ratio stands at 1.25, higher than the industry average at 1.16. (Note: All ratios based on the most recent quarter, annualized)

4. Medicis Pharmaceutical Corp. (MRX): Biotechnology Industry. Market cap of $1.54B. SMA50 at $26.94 vs. SMA200 at $26.56 (current price at $25.34).

Net Income grew by 30.40% ($27.6M vs. $21.2M y/y), while Operating Cash Flow grew by 32.48% ($34.8M vs. $26.3M y/y) (comparing 3 months ending 2010-09-30 vs. 3 months ending 2009-09-30).

Short float at 5.29%, which implies a short ratio of 3.98 days. The stock has gained 10.17% over the last year.

Other Highlights:

The company's capital spending accelerated by 12.88% over the last five years, much faster than the industry average of 1.57%. At least theoretically, this makes them more competitive over the coming years, since their operational assets are more up-to-date.

Judging by trailing twelve month (TTM) ratios like Return on Equity (ROE), Return on Assets (ROA) and Return on Invested Capital (ROI), it's clear that the company's management is doing an excellent job. TTM ROE at 18.51%, higher than the industry average at 17.01%, TTM ROA at 11.15% vs. the industry average at 8.%, and TTM ROI at 15.09%, higher than the industry average at 12.84%. The company also outperformed its industry competitors in terms of the TTM Return on Sales ratio (19.85% vs. the industry average at -2.17%).

5. Senior Housing Properties Trust (NYSE:SNH): REIT. Market cap of $3.23B. SMA50 at $21.85 vs. SMA200 at $21.84 (current price at $23.41).

Net Income grew by 5.45% ($33.9M vs. $32.1M y/y), while Operating Cash Flow grew by 7.47% ($78.0M vs. $72.6M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31).

Short float at 1.84%, which implies a short ratio of 1.53 days. The stock has gained 18.95% over the last year.

Other Highlights:

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 10.9M shares during the most recent quarter, vs. 623.7K net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 3.0M shares during the most recent quarter, vs. 805.3K net shares purchased in the previous quarter.

6. Federal Realty Investment Trust (NYSE:FRT): REIT. Market cap of $5.02B. SMA50 at $78.61 vs. SMA200 at $77.18 (current price at $82.54).

Net Income grew by 284.08% ($122.8M vs. $32.0M y/y), while Operating Cash Flow grew by 285.28% ($347.2M vs. $90.1M y/y) (comparing 12 months ending 2010-12-31 vs. 3 months ending 2009-12-31).

Short float at 7.43%, which implies a short ratio of 10.78 days. The stock has gained 22.22% over the last year.

Other Highlights:

When compared to industry competitors, the company reported better than average profit margins during the most recent quarter. Gross margins came in at 42.9%, higher than the industry average at 31.23% (most recent quarter, annualized). Operating margin came in at 42.9%, higher than the industry average at 30.14%, while net profit margin came in at 42.9% vs. the industry average at 30.14%.

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