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We are made wise not by the recollection of our past, but by the responsibility for our future. George Bernard Shaw

The single most important criteria to make it to this list was that every single stock on the list had to be among the top 100 performing stocks. The strength of each stock was calculated by the following two measures.

  1. Highest weighted Alpha - this is a measure of how much change there has been in the stock over a period of one year. Only the top candidates were selected.
  2. Relative strength - it is a measure of price trend that indicates how a stock is performing relative to its peers in the industry. Only stocks with very high relative strength values were considered.

In addition to the above the following requirements also had to be met:

  1. Net income in general should be trending upwards for the past 3 years or quick ratio of 3.5 and 5 year ROE average of 15% or higher.
  2. EBITDA in general should be trending upwards for the 3 years. In order to bypass this requirement the company in question would need to have a cash and or quick ratio in excess of 3,500.
  3. Annual EPS before NRI in general should be trending upwards for the past 3 years.
  4. Cash flow per share should be trending upwards for the past 3 years; in order to by pass this restriction a company would need to have a 5 year ROE average in excess of 35%.
  5. Current ratio of 3.5 or higher.
  6. Quick ratio of 3.00 or higher.

Many key ratios will be covered in this article and investors would do well to get a handle on some of the more important ones which are dealt with below.

Long-term debt-to-equity ratio is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase, the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.

Operating cash flow is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt. The cash flow is what pays the bills.

Free cash flow yield is obtained by dividing free cash flow per share by the current price of each share. Generally lower ratios are associated with an unattractive investment and vice versa. Free cash flow takes into account capital expenditures and other ongoing costs associated with the day to day to functions of the business. In our view free cash flow yield is a better valuation metric than earnings yield because of the above factors.

The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than they are making. This situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for some time. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever. If your tolerance for risk is low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest - 5 Stocks To Reflect Upon.

Current Ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing future earnings. Ideally the company should have a ratio of 1 or higher.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa. Lower ratios are generally more attractive. If a company generated $400 million in cash flow and then spent $100 million on capital expenditures, then its free cash flow is $300 million. If the share price is $100 and the free cash flow per share is $5, then the company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry. This gives you an idea of how the company you are interested in holds up to the other companies within the industry.

Cash ratio this is the ratio of the company's total cash and cash equivalents to its current liabilities. This ratio is used as a measure of a company's liquidity. It allows investors to determine how fast the company would be able to pay its short term debts if push came to shove. Higher numbers are better because it makes it easier for a company to ask for new loans, increase in credit lines, etc.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of one year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa. See 5 Top Weighted Alpha Plays To Reflect On: Part II.

Company: Omnivision Tech (NASDAQ:OVTI)

Basic Key ratios

Percentage Held by Insiders = 0.4

Growth

  1. Net Income ($mil) 12/2011 = 124
  2. Net Income ($mil) 12/2010 = 7
  3. Net Income ($mil) 12/2009 = -37
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 3.25
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -99.75
  1. EBITDA ($mil) 12/2011 = 149
  2. EBITDA ($mil) 12/2010 = 33
  3. EBITDA ($mil) 12/2009 = -12
  4. Annual Net Income this Yr/ Net Income last Yr = 1752.38
  5. Cash Flow ($/share) 12/2011 = 2.53
  6. Cash Flow ($/share) 12/2010 = 0.57
  7. Cash Flow ($/share) 12/2009 = -0.06
  1. Sales ($mil) 12/2011 = 956
  2. Sales ($mil) 12/2010 = 603
  3. Sales ($mil) 12/2009 = 507
  1. Annual EPS before NRI 12/2007 = 0.47
  2. Annual EPS before NRI 12/2008 = 1.11
  3. Annual EPS before NRI 12/2009 = -0.59
  4. Annual EPS before NRI 12/2010 = 0.13
  5. Annual EPS before NRI 12/2011 = 2.12

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -45.35
  2. Next 3-5 Year Estimate EPS Growth rate = 15
  3. EPS Growth Quarterly(1)/Q(-3) = -101
  4. 5 Year History EPS Growth 12/2011 = 28.73
  5. 5 Year History EPS Growth 09/2011 = 28.73
  6. ROE 5 Year Average 12/2011 = 6.53
  7. Return on Investment 12/2011 = 11.22
  8. Debt/Total Cap 5 Year Average 12/2011 = 6.2
  1. Current Ratio 12/2011 = 6.2
  2. Current Ratio 09/2011 = 6.2
  3. Current Ratio 06/2011 = 3.85
  4. Current Ratio 5 Year Average = 4.97
  5. Quick Ratio = 4.19
  6. Cash Ratio = 3.23
  7. Interest Coverage Quarterly = 1.11

Valuation

  1. Book Value Quarterly = 12.83
  2. Price/ Book = 1.47
  3. Price/ Cash Flow = 7.44

Company: Alcatel Ads (NYSE:ALU)

Basic Key ratios

Percentage Held by Insiders = 1

Growth

  1. Net Income ($mil) 12/2011 = 1484
  2. Net Income ($mil) 12/2010 = -387
  3. Net Income ($mil) 12/2009 = -703
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 705.11
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 3663.64
  1. EBITDA ($mil) 12/2011 = 699
  2. EBITDA ($mil) 12/2010 = 82
  3. EBITDA ($mil) 12/2009 = -534
  4. Annual Net Income this Yr/ Net Income last Yr = 483.46
  5. Cash Flow ($/share) 12/2011 = 0.50
  6. Cash Flow ($/share) 12/2010 = -0.09
  7. Cash Flow ($/share) 12/2009 = -0.22
  1. Sales ($mil) 12/2011 = 20215
  2. Sales ($mil) 12/2010 = 21849
  3. Sales ($mil) 12/2009 = 20856
  1. Annual EPS before NRI 12/2007 = -0.27
  2. Annual EPS before NRI 12/2008 = -1.02
  3. Annual EPS before NRI 12/2009 = -0.23
  4. Annual EPS before NRI 12/2010 = -0.1
  5. Annual EPS before NRI 12/2011 = 0.47

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -76.55
  2. Next 3-5 Year Estimate EPS Growth rate = 10
  3. EPS Growth Quarterly(1)/Q(-3) = -137.33
  4. ROE 5 Year Average 12/2011 = -5.14
  5. Return on Investment 06/2011 = 10.77
  6. Debt/Total Cap 5 Year Average 12/2011 = 43.33
  1. Current Ratio 06/2011 = 1.34
  2. Current Ratio 5 Year Average = 1.25
  3. Quick Ratio = 1.11
  4. Cash Ratio = 0.7
  5. Interest Coverage Quarterly = 1.72

Valuation

  1. Book Value Quarterly = 2.57
  2. Price/ Book = 0.61
  3. Price/ Cash Flow = 3.1

Company: Veeco Instrument (NASDAQ:VECO)

Basic Key ratios

Percentage Held by Insiders = 0.98

Growth

  1. Net Income ($mil) 12/2011 = 128
  2. Net Income ($mil) 12/2010 = 362
  3. Net Income ($mil) 12/2009 = -16
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -64.62
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -89.72
  1. EBITDA ($mil) 12/2011 = 291
  2. EBITDA ($mil) 12/2010 = 319
  3. EBITDA ($mil) 12/2009 = 24
  4. Annual Net Income this Yr/ Net Income last Yr = -64.62
  5. Cash Flow ($/share) 12/2011 = 5.49
  6. Cash Flow ($/share) 12/2010 = 5.05
  7. Cash Flow ($/share) 12/2009 = 0.16
  1. Sales ($mil) 12/2011 = 979
  2. Sales ($mil) 12/2010 = 933
  3. Sales ($mil) 12/2009 = 380
  1. Annual EPS before NRI 12/2007 = 0.12
  2. Annual EPS before NRI 12/2008 = 0.5
  3. Annual EPS before NRI 12/2009 = -0.28
  4. Annual EPS before NRI 12/2010 = 4.42
  5. Annual EPS before NRI 12/2011 = 4.82

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -41.56
  2. Next 3-5 Year Estimate EPS Growth rate = 15
  3. EPS Growth Quarterly(1)/Q(-3) = 147.66
  4. ROE 5 Year Average 12/2011 = 11.23
  5. Return on Investment 06/2011 = 24.2
  6. Debt/Total Cap 5 Year Average 12/2011 = 20.98
  7. Current Ratio 06/2011 = 4.51
  8. Current Ratio 5 Year Average = 3
  9. Quick Ratio = 3.83
  10. Cash Ratio = 3.26
  11. Interest Coverage Quarterly = 31.77

Valuation

  1. Book Value Quarterly = 19.64
  2. Price/ Book = 1.55
  3. Price/ Cash Flow = 5.53

Company: Interdigitial Inc (NASDAQ:IDCC)

Basic Key ratios

  1. Percentage Held by Insiders = 0.79
  2. Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = 89
  2. Net Income ($mil) 12/2010 = 154
  3. Net Income ($mil) 12/2009 = 87
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -39.86
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -53.17
  1. EBITDA ($mil) 12/2011 = 155
  2. EBITDA ($mil) 12/2010 = 261
  3. EBITDA ($mil) 12/2009 = 136
  4. Annual Net Income this Yr/ Net Income last Yr = -41.76
  5. Cash Flow ($/share) 12/2011 = 2.63
  6. Cash Flow ($/share) 12/2010 = 3.97
  7. Cash Flow ($/share) 12/2009 = 2.79
  1. Sales ($mil) 12/2011 = 302
  2. Sales ($mil) 12/2010 = 395
  3. Sales ($mil) 12/2009 = 297
  1. Annual EPS before NRI 12/2007 = 0.72
  2. Annual EPS before NRI 12/2008 = 0.47
  3. Annual EPS before NRI 12/2009 = 2.18
  4. Annual EPS before NRI 12/2010 = 3.43
  5. Annual EPS before NRI 12/2011 = 1.94

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -44.81
  2. Next 3-5 Year Estimate EPS Growth rate = -4.1
  3. EPS Growth Quarterly(1)/Q(-3) = 152.94
  4. ROE 5 Year Average 09/2011 = 40.96
  5. ROE 5 Year Average 06/2011 = 43.27
  6. Debt/Total Cap 5 Year Average 12/2011 = 5.44
  1. Current Ratio 06/2011 = 4.44
  2. Current Ratio 5 Year Average = 2.95
  3. Quick Ratio = 4.44
  4. Cash Ratio = 4.28
  5. Interest Coverage Quarterly = N/A

Valuation

  1. Book Value Quarterly = 10.37
  2. Price/ Book = 2.64
  3. Price/ Cash Flow = 10.38

Company: Rf Micro Device (NASDAQ:RFMD)

Basic Key ratios

  1. Percentage Held by Insiders = 1.43
  2. Number of Institutional Sellers 12 Weeks = 7

Growth

  1. Net Income ($mil) 12/2011 = 125
  2. Net Income ($mil) 12/2010 = 71
  3. Net Income ($mil) 12/2009 = N/A
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -99.31
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -153.83
  1. EBITDA ($mil) 12/2011 = 236
  2. EBITDA ($mil) 12/2010 = 218
  3. EBITDA ($mil) 12/2009 = N/A
  4. Annual Net Income this Yr/ Net Income last Yr = 75.4
  5. Cash Flow ($/share) 12/2011 = 0.88
  6. Cash Flow ($/share) 12/2010 = 0.81
  7. Cash Flow ($/share) 12/2009 = N/A
  1. Sales ($mil) 12/2011 = 1052
  2. Sales ($mil) 12/2010 = 978
  3. Sales ($mil) 12/2009 = N/A
  1. Annual EPS before NRI 12/2007 = N/A
  2. Annual EPS before NRI 12/2008 = 0.15
  3. Annual EPS before NRI 12/2009 = -0.1
  4. Annual EPS before NRI 12/2010 = 0.38
  5. Annual EPS before NRI 12/2011 = 0.52

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -35.12
  2. Next 3-5 Year Estimate EPS Growth rate = 13.67
  3. EPS Growth Quarterly (1)/Q(-3) = -181
  4. ROE 5 Year Average 12/2011 = 11.15
  5. Return on Investment 06/2011 = 7.21
  6. Debt/Total Cap 5 Year Average 12/2011 = 33.14
  1. Current Ratio 06/2011 = 3.53
  2. Current Ratio 5 Year Average = 4.47
  3. Quick Ratio = 3.34
  4. Cash Ratio = 2.37
  5. Interest Coverage Quarterly = N/A

Valuation

  1. Book Value Quarterly = 2.44
  2. Price/ Book = 1.79
  3. Price/ Cash Flow = 4.98

Conclusion

Long-term investors should consider waiting for a strong pullback before committing large sums of new money to this market. In the meantime, individuals can sell covered calls or naked puts if you are bullish on the stock to open up additional streams of income.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: 5 Top Rated Relative Strength Plays

Additional disclosure: EPS, Price, EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com.