Are you looking for mid-sized companies that still have room to grow? Interested in stocks paying dividend income, but don't know where to start? Do you prefer companies with high liquidity? For ideas on where to look, we ran a screen you might find interesting.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share [EPS], and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is 'better' (cheaper) and a higher ratio is 'worse' (expensive) - a PEG ratio of 1 means the company is fairly priced.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
We first looked for mid cap dividend stocks that appear undervalued from a price-multiple perspective (P/E<10) and that appear undervalued relative to earnings growth (PEG < 1). From this narrowed list of candidates, we then looked for companies that have strong liquidity by their Current Ratio and Quick Ratio (Current Ratio>2) (Quick Ratio>2). We did not screen out any sectors.
Do you think these stocks will continue to see such strong profitability? Use our list along with your own analysis.
1) Alliance Resource Partners LP (ARLP)
|Industry:||Industrial Metals & Minerals|
Alliance Resource Partners LP has a Dividend yield of 6.25% and Price/Earnings Ratio of 7.79 and Price/Earnings to Growth Ratio of 0.84 and Current Ratio of 2.38 and Quick Ratio of 2.21. The short interest was 1.19% as of 04/27/2012. Alliance Resource Partners, L.P. engages in the production and marketing of coal primarily to utilities and industrial users in the United States.
2) AVX Corp. (AVX)
AVX Corp. has a Dividend yield of 2.33% and Price/Earnings Ratio of 9.52 and Price/Earnings to Growth Ratio of 0.79 and Current Ratio of 8.60 and Quick Ratio of 5.69. The short interest was 1.24% as of 04/27/2012. AVX Corporation, together with its subsidiaries, manufactures and supplies passive electronic components and interconnect products in the Americas, Europe, and Asia. The company operates through three segments: Passive Components, Kyocera Electronic Devices (KED Resale), and Interconnect. The Passive Components segment offers surface mount and leaded ceramic capacitors, RF thick and thin film components, tantalum capacitors, film capacitors, ceramic and film power capacitors, super capacitors, EMI filters, thick and thin film packages, varistors, thermistors, inductors, and resistive products. The KED Resale segment sells ceramic capacitors, frequency control devices, SAW devices, sensor products, RF modules, actuators, acoustic devices, and connectors produced by Kyocera.
3) RPC Inc. (RES)
|Industry:||Oil & Gas Equipment & Services|
RPC Inc. has a Dividend yield of 3.13% and Price/Earnings Ratio of 7.57 and Price/Earnings to Growth Ratio of 0.32 and Current Ratio of 3.49 and Quick Ratio of 2.93. The short interest was 22.93% as of 04/27/2012. RPC, Inc. provides a range of oilfield services and equipment primarily to independent oil and gas companies engaged in the exploration, production, and development of oil and gas properties in the United States, Africa, Canada, China, eastern Europe, Latin America, the Middle East, and New Zealand. It operates in two segments, Technical Services and Support Services. The Technical Services segment offers pressure pumping, coiled tubing, snubbing, nitrogen pumping, well control consulting and firefighting, downhole tools, wireline, and fluid pumping services.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.