Mid cap stocks are an interesting breed. They carry some of the risks of smaller cap companies, but they still have the potential to grow to the size of their larger cap peers. One way for mid caps to grow is through smart investments, acquisitions, or heavy investment in R & D. Having cash on hand allows that to happen. Today we focused on mid caps with strong cash reserves, backed by track records of profitability. We think you'll find the list our screen produced rather interesting.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
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.
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 stocks. We then looked for businesses with strong profitability (Net Margin [TTM] >10%)(ROE [TTM]>30%). We next screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these mid-cap stocks will continue to see such strong profitability? Use our screened list as a starting point for your own analysis.
1) Jazz Pharmaceuticals plc (JAZZ)
Jazz Pharmaceuticals plc has a Net Margin of 39.67% and Return on Equity of 31.08% and Current Ratio of 3.13 and Quick Ratio of 2.97. The short interest was 5.05% as of 06/05/2012. Jazz Pharmaceuticals Public Limited Company, a specialty biopharmaceutical company, focuses on the identification, development, and commercialization of pharmaceutical products to meet unmet medical needs. Its marketed products include Xyrem, a sodium oxybate oral solution for the treatment of cataplexy and excessive daytime sleepiness in patients with narcolepsy; FazaClo (clozapine, USP) LD and FazaClo HD products, which are orally disintegrating clozapine tablets for the treatment of resistant schizophrenia; Luvox CR extended-release capsules for the treatment of obsessive compulsive disorder; and Prialt, a non-opioid intrathecal analgesic for refractory severe chronic pain. The company also offers women's health and other products, such as Elestrin for moderate-to-severe vasomotor symptoms associated with menopause; Natelle and Gesticare prescription prenatal vitamins; Urelle for irritative voiding, as well as for inflammation, hypermotility, and pain that accompany lower urinary tract infections; Gastrocrom oral concentrate for mastocytosis; Parcopa for idiopathic Parkinson's disease; and AVC (sulfanilamide) cream to treat vulvovaginitis caused by Candida albicans, as well as Niravam for the management of anxiety disorder or the short-term relief of symptoms of anxiety, as well as for panic disorder with or without agoraphobia.
2) Linear Technology Corp. (LLTC)
|Industry:||Semiconductor - Specialized|
Linear Technology Corp. has a Net Margin of 34.98% and Return on Equity of 84.33% and Current Ratio of 9.18 and Quick Ratio of 8.66. The short interest was 3.24% as of 06/05/2012. Linear Technology Corporation, together with its subsidiaries, designs, manufactures, and markets various analog integrated circuits worldwide. The company produces power management, data conversion, signal conditioning, RF and interface ICs, and Module subsystems. Its products comprise amplifiers, high speed amplifiers, voltage regulators, voltage references, interface, data converters, radio frequency circuits, power over Ethernet controllers, Module power products, and single chain Module products, as well as other liner circuits. The company's product applications include telecommunications, cellular telephones, networking products, tablet, notebook, and desktop computers; computer peripherals, video/multimedia, industrial instrumentation, and security monitoring devices; consumer products, such as digital cameras and global positioning systems; complex medical devices, automotive electronics, factory automation, and process control; and military, space, and other harsh environment systems.
3) TransDigm Group Incorporated (TDG)
|Industry:||Aerospace/Defense Products & Services|
TransDigm Group Incorporated has a Net Margin of 18.65% and Return on Equity of 32.39% and Current Ratio of 3.88 and Quick Ratio of 2.32. The short interest was 1.08% as of 06/05/2012. TransDigm Group Incorporated designs, produces, and supplies engineered aircraft components for use on commercial and military aircraft principally in the United States. The company's products include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, pumps and valves, power conditioning devices, AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, cockpit displays, aircraft audio systems, lavatory components, engineered interior surfaces, and lighting and control technology. Its customers comprise distributors of aerospace components; commercial airlines, including national and regional airlines; commercial transport and regional and business aircraft original equipment manufacturers (OEMs); various armed forces of the United States and foreign governments; defense OEMs; system suppliers; and various other industrial customers.
4) Nationstar Mortgage Holdings Inc. (NSM)
Nationstar Mortgage Holdings Inc. has a Net Margin of 19.65% and Return on Equity of 46.82% and Current Ratio of 8.18 and Quick Ratio of 7.50. The short interest was 0.15% as of 06/05/2012. Nationstar Mortgage Holdings Inc., through its subsidiary, Nationstar Mortgage LLC, engages in the servicing of residential mortgage loans in the United States. It is also involved in the origination and sale or securitization of single-family conforming mortgage loans to government-sponsored entities or other third party investors in the secondary market. The company services a range of mortgage loans, including prime and non-prime loans, traditional and reverse mortgage loans, and GSE and government agency-insured loans, as well as private-label loans issued by non-government affiliated institutions.
5) Questcor Pharmaceuticals, Inc. (QCOR)
Questcor Pharmaceuticals, Inc. has a Net Margin of 38.55% and Return on Equity of 59.92% and Current Ratio of 4.28 and Quick Ratio of 4.20. The short interest was 25.46% as of 06/05/2012. Questcor Pharmaceuticals, Inc., a biopharmaceutical company, provides prescription drugs for the treatment of multiple sclerosis, nephrotic syndrome, and infantile spasms indications.
6) Graco Inc. (GGG)
Graco Inc. has a Net Margin of 15.41% and Return on Equity of 41.48% and Current Ratio of 4.73 and Quick Ratio of 3.91. The short interest was 1.73% as of 06/05/2012. Graco Inc. designs, manufactures, and markets systems and equipment to pump, meter, mix, and dispense various fluids and semi-solids worldwide. It operates in three segments: Industrial, Contractor, and Lubrication. The Industrial segment provides equipment to apply paint and other coatings to motor vehicles, appliances, furniture, and other industrial and consumer products; and process pump equipment that move and dispense chemicals, and liquid and semi-solid foods.
7) RPC Inc. (RES)
|Industry:||Oil & Gas Equipment & Services|
RPC Inc. has a Net Margin of 16.14% and Return on Equity of 45.09% and Current Ratio of 2.86 and Quick Ratio of 2.32. The short interest was 22.49% as of 06/05/2012. 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.
8) Terra Nitrogen Company, L.P. (TNH)
Terra Nitrogen Company, L.P. has a Net Margin of 63.93% and Return on Equity of 121.29% and Current Ratio of 4.63 and Quick Ratio of 4.18. The short interest was 5.85% as of 06/05/2012. 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.
9) Waters Corp. (WAT)
|Industry:||Medical Appliances & Equipment|
Waters Corp. has a Net Margin of 23.16% and Return on Equity of 35.04% and Current Ratio of 3.12 and Quick Ratio of 2.76. The short interest was 2.49% as of 06/05/2012. Waters Corporation, an analytical instrument manufacturer, designs, manufactures, sells, and services high performance liquid chromatography, ultra performance liquid chromatography, and mass spectrometry technology systems and support products primarily in the United States, Europe, Japan, and Asia. Its products are used in various industries to detect, identify, monitor, and measure the chemical, physical, and biological composition of materials, as well as to purify a range of compounds; and in drug discovery and development, including clinical trial testing, the analysis of proteins in disease processes, food safety analysis, and environmental testing. The company also offers thermal analysis, rheometry, and calorimetry instruments that are used in predicting the suitability of fine chemicals, polymers, and viscous liquids for various industrial, consumer goods, and healthcare products, as well as for life science research. In addition, it develops and supplies software-based products that interface with its instruments.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.