Small-cap stocks tend to offer investors greater growth opportunities than large-cap alternatives, although they do come with their fair share of added risk. Are you looking for small-caps? Interested in industrial companies? Do you prefer dividend stocks? In search of companies that can manage their debt well? If so, here are some ideas to start your stock search.
The current ratio is a liquidity ratio used to determine a company's financial health. This 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 1 or less is generally a liquidity red flag. This doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well, 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 it's able to meet current obligations using liquid assets).
The debt/equity ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
We first looked for small-cap industrial dividend stocks. We then looked for businesses that have a substantial amount of cash on hand (current ratio > 2; quick ratio > 2). Next, we screened for businesses that have maintained a sound capital structure (D/E ratio < 0.3).
Do you think these small-cap stocks deserve to grow higher? Use this list as a starting point for your own analysis.
1. Electro Scientific Industries (ESIO)
|Industry:||Industrial Electrical Equipment|
Electro Scientific Industries has a dividend yield of 2.20%, a current ratio of 7.98, a quick ratio of 6.22, and a debt/equity ratio of 0.00. The short interest was 2.55% as of April 29, 2012.
Electro Scientific Industries, together with its subsidiaries, provides high-tech manufacturing equipment to the semiconductor, interconnect/micromachining, and component markets. It offers semiconductor memory yield equipment, which is primarily used in the manufacture of dynamic random access memory devices; a model 2100 thin-film-on-silicon trimming system that enables manufacturers in trimming performance parameters to specific values for precision analog devices; a sapphire wafer scribing system that is used in the manufacture of light emitting diodes (LEDS); and laser liquid crystal display repair systems to enhance yields in the manufacture of flat panel displays. The company also produces high-capacity test and optical inspection equipment that helps in the quality control process during the production of multilayer ceramic capacitors; laser microvia engineering systems for electrical interconnect applications between layers in high-density circuit boards, flexible circuits, and IC packages; and UV laser processing systems.
2. MKS Instruments (MKSI)
MKS Instruments has a dividend yield of 2.15%, a current ratio of 9.18, a quick ratio of 7.58, and a debt/equity ratio of 0.00. The short interest was 2.57% as of April 29, 2012.
MKS Instruments, together with its subsidiaries, provides instruments, subsystems, and process control solutions that measure, control, power, monitor, and analyze parameters of manufacturing processes worldwide. It offers instruments and control systems, such as pressure measurement and control, materials delivery, gas composition analysis, and control and information technology products. The company also provides power and reactive gas generation products comprising power delivery, reactive gas generation, processing thin films, and equipment cleaning products; and vacuum technology products, including vacuum containment components, vacuum gauges, vacuum valves, effluent management subsystems and custom stainless steel chambers, vessels, and pharmaceutical process equipment hardware and housings.
3. Ceradyne (CRDN)
|Industry:||Industrial Equipment & Components|
Ceradyne has a dividend yield of 2.32%, a current ratio of 3.46, a quick ratio of 2.70, and a debt/equity ratio of 0.13. The short interest was 5.17% as of April 29, 2012.
Ceradyne engages in the development, manufacture, and market of technical ceramic products, ceramic powders, and components in the U.S. and internationally. Its products include lightweight ceramic armor and combat helmets for soldiers and other military applications; ceramic industrial components for erosion and corrosion resistant applications; ceramic powders, including boron carbide, boron nitride, titanium diboride, calcium hexaboride, zirconium diboride, and fused silica, which are used in manufacturing armor and a range of industrial and consumer products; evaporation boats for metallization of materials for food packaging; and ceramic diesel engine components. The company also offers functional and frictional coatings primarily for automotive applications; translucent ceramic orthodontic brackets; ceramic crucibles for melting silicon in the photovoltaic solar cell manufacturing process; ceramic-impregnated dispenser cathodes for microwave tubes, lasers, and cathode ray tubes; specialty glass compositions for solar, electronic, industrial, and health care markets; ceramic missile radomes for the defense industry; and fused silica powders for precision investment casting.
Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Google Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.