Are you looking for mid-sized companies that still have room to grow? Interested in gaining exposure to basic materials companies? Interested in stocks paying dividend income, but don't know where to start? Looking for ways to dig deeper into a company's profitability? You might like what we've put on our list.
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).
Return on Assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
Return on Equity (ROE) is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
We first looked for mid cap basic materials dividend stocks. We then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then screened for businesses that have strong profitability relative to their asset base (ROA [TTM]>10%)(ROE [TTM]>30%).
Do you think these mid-cap stocks are in strong positions for future growth? Use this list as a starting-off point for your own analysis.
1) CVR Partners, LP (UAN)
| Sector: | Basic Materials |
| Industry: | Agricultural Chemicals |
| Market Cap: | $2.03B |
| Beta: | - |
CVR Partners, LP has a Dividend yield of 6.91% and Current Ratio of 6.40 and Quick Ratio of 5.86 and Return on Assets of 23.83% and Return on Equity of 53.65%. The short interest was 1.43% as of 04/29/2012. CVR Partners, LP engages in the production, distribution, and marketing of nitrogen fertilizers in North America. Its nitrogen fertilizer products include ammonia and urea ammonium nitrate. The company was founded in 2007 and is based in Sugar Land, Texas.
2) Terra Nitrogen Company, L.P. (TNH)
| Sector: | Basic Materials |
| Industry: | Agricultural Chemicals |
| Market Cap: | $5.07B |
| Beta: | 0.73 |
Terra Nitrogen Company, L.P. has a Dividend yield of 6.23% and Current Ratio of 6.94 and Quick Ratio of 6.22 and Return on Assets of 170.07% and Return on Equity of 127.46%. The short interest was 1.56% as of 04/29/2012. Terra Nitrogen Company, L.P. engages in the production and sale of nitrogen fertilizer products. It primarily offers anhydrous ammonia and urea ammonium nitrate solutions.
3) Alliance Holdings GP, L.P. (AHGP)
| Sector: | Basic Materials |
| Industry: | Nonmetallic Mineral Mining |
| Market Cap: | $2.62B |
| Beta: | 0.74 |
Alliance Holdings GP, L.P. has a Dividend yield of 5.82% and Current Ratio of 2.39 and Quick Ratio of 2.22 and Return on Assets of 23.86% and Return on Equity of 59.58%. The short interest was 0.36% as of 04/29/2012. Alliance Holdings GP, L.P., through its subsidiaries, produces and markets coal primarily to utilities and industrial users in the United States. It produces a range of steam coal with varying sulfur and heat contents. The company operates nine underground mining complexes in Illinois, Indiana, Kentucky, Maryland, and West Virginia.
Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
