Good Stocks To Invest In 2012

"Buy low and sell high" is more than just a trite investing axiom - it's the formula for investing success.

But exactly what do we mean when we say "buy low?"

Take that $1-a-share stock. If a company has falling profits, negative net worth and a dying product line (e.g., typewriters), that $1.00 stock could actually be quite expensive.

But if the company whose shares are trading at a buck has cash in the bank, no debt, a high "intrinsic value" and a growing market for its trendsetting products, it could easily be a real bargain at $100.

The key in both cases, of course, is value. Finding stocks that are selling at a cheap price relative to their true worth can be an investors' next big portfolio winner.

Good Stocks To Invest In 2012:American Income Fund Inc. (MRF)

 American Income Fund Inc. is a closed-ended fixed-income mutual fund launched and managed by FAF Advisors, Inc. It is co-managed by Nuveen Asset Management. The fund invests in fixed income markets of the United States. It seeks to invest in companies operating across diversified sectors. The fund primarily invests in combination of mortgage-backed securities and higher-yielding corporate bonds. It maintains an average minimum credit quality of BBB and effective duration of the portfolio at five years. The fund benchmarks the performance of its portfolios against Lehman Brothers High Yield Index and Lehman Brothers Government/Mortgage Index. American Income Fund Inc was formed on December 30, 1988 and is domiciled in United States.

Good Stocks To Invest In 2012:Ross Stores Inc. (ROST)

 Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home accessories stores under the Ross Dress for Less and dd?s DISCOUNTS brand names in the United States. Its Ross Dress for Less brand stores sell brand and designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20 to 60 percent off department and specialty store regular prices; and dd?s DISCOUNTS brand stores sell apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20 to 70 percent off moderate department and discount store regular prices. As of January 29, 2011, the company operated 1,055 stores, of which 988 were Ross Dress for Less brand stores in 27 states and Guam, and 67 were dd?s DISCOUNTS brand stores in 6 states. Its Ross Dress for Less brand stores primarily target middle income households and dd?s DISCOUNTS brand stores target moderate income households. Ross Stores, Inc. was founded in 1957 and is headquartered in Pleasanton, California.

Good Stocks To Invest In 2012:Bristow Group Inc (BRS)

 Bristow Group Inc., together with its subsidiaries, provides helicopter services to the offshore energy industry primarily in Europe, West Africa, North America, Australia, and internationally. Its helicopters are used principally to transport personnel between onshore bases and offshore platforms, drilling rigs, and installations, as well as to transport time-sensitive equipment to offshore locations. The company also offers helicopter flight training services to commercial pilots and flight instructors through its Bristow Academy with facilities in Titusville, Florida; Concord, California; New Iberia, Louisiana and Gloucestershire, England. In addition, it provides military training; and helicopter repair, engineering support, aircraft leasing, airport management, and search and rescue services. Bristow Group provides its helicopter services to integrated, national, and independent oil and gas companies. As of March 31, 2011, it operated a fleet of 569 aircraft. The company was founded in 1969 and is based in Houston, Texas.

Good Stocks To Invest In 2012:Bank of Nova Scotia (The) (BNS)

 The Bank of Nova Scotia, together with its subsidiaries, offers various personal, commercial, corporate, and investment banking services in Canada and internationally. It has four segments: Canadian Banking, International Banking, Global Wealth Management, and Scotia Capital. The Canadian Banking segment includes retail and small business banking, which provides mortgages, loans, credit cards, investments, and day-to-day banking products to individuals and small businesses; and commercial banking business that delivers a product suite to medium and large businesses, including banking, cash management, lending, and leasing. This segment operates in Canada through a network of 1,024 branches and 2,998 automated banking machines (ABMs), as well as telephone, Internet banking, and third party channels. The International Banking segment provides retail and commercial banking services to customers located in the Caribbean and Central America, Mexico, Latin America, and Asia. It operates through a network of approximately 2,000 branches and offices, 3,686 ABMs, telephone and Internet banking, in-store banking kiosks, and specialized sales forces. The Scotia Capital segment provides corporate lending, equity and debt underwriting, and mergers and acquisitions advisory services, as well as capital markets products and services, such as fixed income, derivatives, prime brokerage, securitization, foreign exchange, equity sales, and trading and research services to corporate, government, and institutional investor clients. This segment also provides precious and base metals related banking services, through ScotiaMocatta. The Global Wealth Management segment comprises wealth management, insurance, and global transaction banking businesses. It collaborates and works in partnership with Canadian Banking, International Banking, and Scotia Capital segments. The Bank of Nova Scotia was founded in 1832 and is based in Toronto, Canada.

Good Stocks To Invest In 2012:Acme United Corporation. (ACU)

 Acme United Corporation, together with its subsidiaries, develops and markets cutting, measuring, and safety products to the school, home, office, hardware, and industrial markets in the United States, Canada, Europe, and Asia. Its cutting device products include scissors, shears, guillotine paper trimmers, rotary paper trimmers, rotary cutters, knives, hobby knives and blades, utility knives, pruners, loppers, saws, manicure products, medical cutting instruments, and pencil sharpeners. The company?s measuring instruments products comprise rulers, math tools, tape measures, erasers, compasses and protractors, and rulers and math kits; and safety products that consist of first aid kits, personal protection products, over-the-counter medication refills, emergency care responder kits, and flu care kits. It sells its products through its independent manufacturer representatives and directly under the Westcott, Clauss, Camillus, and PhysiciansCare brand names. The company serves wholesale, contract, and retail stationery distributors; office supply super stores; school supply distributors; drug store retailers; industrial distributors; wholesale florists; mass market retailers; and hardware chains. Acme United Corporation was founded in 1867 and is headquartered in Fairfield, Connecticut.

Good Stocks To Invest In 2012:Skystar Bio-Pharmaceutical Company (SKBI)

 Skystar Bio-Pharmaceutical Company engages in the research, development, production, marketing, and sale of veterinary healthcare and medical care products in the People?s Republic of China. Its products include veterinary medicine for poultry and livestock; micro-organism products; bio-pharmaceutical veterinary vaccines; and feed additives. The company offers its products through distributors and directly to customers. Skystar Bio-Pharmaceutical Company is headquartered in Xi?an, the People?s Republic of China.

Good Stocks To Invest In 2012:Desarrolladora Homex (HXM)

 Desarrolladora Homex, S.A.B. de C.V. operates as a vertically integrated home development company principally engaged in the development, construction, and sale of affordable entry-level, middle-income, and tourism housing in Mexico; and affordable entry-level housing in Brazil. As of December 31, 2010, the company had land reserves of approximately 82.3 million square meters, which include the titled land and land in the process of being titled. It operates in 34 cities located in 21 Mexican states, including Mexico City metropolitan area and Jalisco. The company was founded in 1989 and is based in Culiacan, Mexico.

Why Trimble Navigation Limited's Earnings Are Outstanding

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.
Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.
Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Trimble Navigation Limited (Nasdaq: TRMB  ) , whose recent revenue and earnings are plotted below.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.

Over the past 12 months, Trimble Navigation Limited generated $218.4 million cash while it booked net income of $150.8 million. That means it turned 13.3% of its revenue into FCF. That sounds pretty impressive.
All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and! replica ble in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).
For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.
So how does the cash flow at Trimble Navigation Limited look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.

Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.

When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.
Trimble Navigation Limited's issue isn't questionable cash flow boosts, but items in that suspect group that reduced cash flow. Within the questionable cash flow figure plotted in ! the TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 5.7% of cash flow from operations. Overall, the biggest drag on FCF came from changes in accounts receivable, which represented 13.2% of cash from operations.
A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.
We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

• Add Trimble Navigation Limited to My Watchlist.