38 Companies with Top Financial Strength

This list of companies selected for top financial strength characteristics could be valuable to do-it-yourself, conservative, risk averse individual stock or bond investors, as a starting place to begin looking for suitable opportunities.

From the thousands of companies available in the US, this list of 38 companies represents some of those with the greatest fundamental financial strength.

To develop the list we identified those companies rated in all of these three ways:

1. Better than B+ for Earnings and Dividends Strength by S&P.
2. Better than B++ for Financial Strength by Value Line.
3. Pay some level of current dividend, have a tangible equity, and long-term debt less than 1/2 of book equity.

There are many other strong companies, but having two noted analytical firms (one qualitative in approach and the other quantitative in approach) rate them highly for financial strength, plus imposing several specific fundamental criteria, should create a fairly high comfort factor with the list as a research starting point.

There were 91 companies that both S&P and Value Line rated highly. That list was reduced to 38 by adding the current dividend, tangible equity and limited long-term debt criteria.

For those investors who are quite concerned about the ability of a company to survive the current economic situation and unprecedented political intervention in the free market, only the financially strong companies can offer some amount sleep insurance.

These companies may or may not offer great gains opportunities, but today return OF capital is a greater focus by some investors than return ON capital.

This list is not a set of investment recommendations, nor a comprehensive list of potentially interesting companies, but it is a set of companies recommended for closer examination by those with low tolerance of insolvency risk, and a concern about their holdings being comparatively bankruptcy remote.

We have not done a review of the “story” behind each company and some may turn out to be clunkers, but we think it is a good research starting list for conservative do-it-yourself investors interested in individual companies instead of funds.

Disclosure: We may own some of these companies from time-to-time in some managed accounts.

Comments

[predictorma...:]

Does this really matter? Haven't the greatest returns since March been in totally crappy stocks/companies?

I'm being a little snippy here only because I am mad at the currently stupidity of this market and the fact that I have had to get stupid to make money.

Jun 12 10:37 AM

[Richard Shaw:]

Predictorman1000:
The utility of this list or one along the same lines is for people who want to be invested for the long-term, but are greatly concerned about fundamental quality risks in their holdings. If price appreciation were the primary concern, then a different list, including emerging markets would be used. This list is purely a fundamental screen of company internals without regard to market valuation or price action. That's interesting to some and irrelevant to others. Just putting it out there for those who want to know which companies appear to be fundamentally solid. S&P and Value Line each rate a couple of hundred companies in their "A" range for financial strength, but they only agree in 91 cases --- putting the debt limitation and tangible equity restrictions on knocks the list way down.

Jun 12 01:11 PM

[predictorma...:]

Thanks for the reply. Once years ago I did a boffo set of analysis for the top execs, thinking the charts and graphs were self evident (and very insightful).

One of the Sr VPs e-mailed me and said "Can you just attach a cover sheet with all your conclusions and I'll agree or disagree with them." I think I have been short-handing ever since.

I didn't mean to dismiss your analysis, but if your point is "if you don't know what to do, invest in solid companies" I get it.

Thanks again.

Jun 12 01:44 PM

[tipalia:]

being a teacher I learn long time ago it s hard to please everybody .
I, for one , did and always and always appreciate when somebody put at our disposition tools that we can rely or not on it. But I also do understand the behaviour of greedy executives , with the blessing and the help from our governments ( or taxpayers should I say) are destroying families and individuals forever in teir instances. That explains the negativity of most of us that lost a lot of money have towards the people that are trying to help us , the trust is gone. You always wonder what is their real agenda.

Jun 13 08:46 AM

[Richard Shaw:]

Predictorman1000:

Several people had for their own and separate reasons asked me for such a list. I thought some others may have a similar information desire so I published the list. That's what and why.

My point was actually not that "if you don't know what to do invest in solid companies". My point was merely to provide data that may or may not be useful to some people.

If an investor didn't know what to do, and didn't want to engage an advisor, they should either do nothing or they should own one all world stock index fund and one broad passive bond index fund (in a suitable proportion).

Buying individual stocks is a form of active management that requires research, conviction, and staying on top of the situation.

This short article was meant to help some people who may be seeking companies rated highly for financial soundness to narrow their research effort -- nothing more than that -- it's just data.

Jun 13 09:59 AM

[RiverCat:]

Thanks for sharing this list of 38 companies which offers an opportunity for a starting point for the research process. I'm always looking for ideas for new investemetnts in strong companies with dividends.

Jun 13 10:25 AM

[BlueOkie:]

I like the criteria. Especially 1/2 of book. As a value investor, I currently own 3 of the stocks. Building a portfolio with 5 or 6 of these stocks from different sectors, would make for a good start. I currently bypass the brokers and invest only thru transfer agents.

Jun 13 10:37 AM

[couldashoulda:]

Thanks for the analysis you did here and have done
in the past. I enjoy your work.

Some thoughts for whatever its worth
Per my math these stocks( equally weighted) have gained (excluding dividends) about 12% YTD and 31% since March 1. S&P 500 has gained 5% and 29% over the same periods. S&P equal weighted (more comparative) has gained 17% and 43%

If these stocks are , say, twice as valuable fundamentally as the other 460 or so stocks in the S&P 500, then the market really doesn't reward fundamentals. If this analysis was true, say, 1/1/2008. The results would be better. They would have lost 22% vs 40% or so for the S&P 500. Of course you cant use the criteria for this list as valid necessarily retroactive for 2008.

This and other analyses has led me to some rules for my own investing.
1. Don’t invest in individual stocks usually. Use aggregates such as ETF's or mutual funds.
2. Success is dependent on the following general scale:
What you buy 10%
When you buy 25%
When you sell 65%
Which leads me to a requirement to have some form of a technical analysis game plan vs fundamental.

Just for fun and hopefully learning, I am selecting
the best 6 or so of these per my technical criteria
and I will track them over coming months

Jun 13 10:40 AM

[Old Trader:]

One thing that struck me about the list, is that it seems to encompass a variety of sectors...something I wasn't expecting to see when I enlarged the list and kooked at it more closely.

I think this list would make an excellent starting point for an investor looking to fashion a "core" retirement portfolio (or modify an existing one).

predictorman; I hear what you're saying about the current market action. Over the last year, or so, I've modified my approach somewhat, by developing a relatively small "tactical", or trading portfolio, alongside my core portfolio.

Jun 13 12:32 PM

[Richard Shaw:]

COULDASHOUDA:

Interesting observations. Keep us informed of your going forward findings if you don't mind.

I would agree with your 10% attribution to "what you buy" if you refer to individual stocks or bonds, but would put a much higher attribution to what you buy in terms of asset classes (e.g. SPY versus AGG).

Not sure about the proper ratio of importance between timing of buying and selling. Certainly the lack of a sell discipline is where lots of gains are given back. Lacking personal data on that, I'd tend to guess more 50/50 in importance -- you may well be right on your skewing toward selling, but would tend by personal observation to agree that better decisions are generally made about buying than about selling, or that more time and effort are spent my most investors on what and when to buy and less on what and when to sell.

Jun 13 12:37 PM

[OnW:]

Years ago, as I was building a portfolio, I made a scatter diagram of about 100 stocks for which both Value Line and S&P provided ratings for future price change (e.g. 1-5 stars). The correlation was about zero. So much for the analysts...use the dart board instead.

Jun 13 09:21 PM

[Richard Shaw:]

OnW: While stats published by S&P and Value Line differ in their conclusions about the effectiveness of their projections for future performance, this article is not about performance or projections. This is about S&P and Value Line ratings as to financial strength which is not the same as prediction of market performance.

Jun 13 09:45 PM

[E Nuff Sed:]

I ran these through the morningstar database as well. Generally these are companies with "moats" and high financial strength (A or B on a 5 point scale - so consistent with S&P/VL analysis). Only 5 of these are rated as "strong buys" by Morningstar with 4 of 5 having wide moats. I also pleased that I own two of them.

Here are the results.
tinyurl.com/mqu5p6

Jun 14 11:49 AM