Tech stocks can seem like a risky bet. Ever heard of pets.com? One way to mitigate risk with tech stocks is to go after larger, more established companies, companies that actually have revenue and profits. It's a good sign when a tech company has strong cash reserves, because having cash on hand can fuel innovative R & D, strategic investments, or acquisitions. Today we focused on large cap stocks that not only possess proven business models, but that also are carrying quite a load of cash. We think you'll like the list we came up with, but first let us describe our screen in more detail.
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 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.
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 large cap technology stocks. We next screened for businesses that have strong bottom line profitability (Net Margin [TTM]>10%)(ROA [TTM]>10%). We next screened for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2).
Do you think these large-cap stocks will offer healthy returns? Use our list along with your own analysis.
1) Oracle Corporation (ORCL)
Oracle Corporation has a Net Margin of 26.34%, a Return on Assets of 13.71%, a Current Ratio of 3.23, and a Quick Ratio of 3.21. The short interest was 0.99% as of 06/12/2012. Oracle Corporation, an enterprise software company, develops, manufactures, markets, distributes, and services database and middleware software, applications software, and hardware systems worldwide. It licenses of database and middleware software, including database management software, application server software, service-oriented architecture and business process management software, data integration software, business intelligence software, identity and access management software, content management software, portals and user interaction software, development tools, and Java; and applications software comprising enterprise resource planning, customer relationship management, enterprise performance management, supply chain management, business intelligence applications, enterprise portfolio project management, Web commerce, and industry-specific applications software. The company also offers customers with rights to unspecified software product upgrades and maintenance releases; Internet access to technical content; and Internet and telephone access to technical support personnel.
2) Analog Devices Inc. (ADI)
|Industry:||Semiconductor - Integrated Circuits|
Analog Devices Inc. has a Net Margin of 25.23%, a Return on Assets of 13.35%, a Current Ratio of 8.10, and a Quick Ratio of 7.55. The short interest was 1.74% as of 06/12/2012. Analog Devices, Inc. engages in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits (ICS) used in industrial, automotive, consumer, and communication applications. The company's signal processing products involve in converting, conditioning, and processing real-world phenomena, such as temperature, pressure, sound, light, speed, and motion into electrical signals. Its product range includes data converters, amplifiers and linear products, radio frequency ICs, power management products, sensors based on micro-electro mechanical systems technology and other sensors, and processing products.
3) Cerner Corporation (CERN)
|Industry:||Healthcare Information Services|
Cerner Corporation has a Net Margin of 14.06%, a Return on Assets of 11.60%, a Current Ratio of 3.59, and a Quick Ratio of 3.56. The short interest was 7.69% as of 06/12/2012. Cerner Corporation designs, develops, markets, installs, hosts, and supports healthcare information technology, healthcare devices, and content solutions for healthcare organizations and consumers worldwide. It offers the Cerner Millennium architecture, which combines clinical, financial, and management information systems that provides access to an individual's electronic health record (EHR) at the point of care, and organizes and delivers information for physicians, nurses, laboratory technicians, pharmacists, front and back-office professionals, and consumers. The company also provides the Healthe Intent platform, a cloud-based platform that sits above existing EHR systems and is designed to contain data from any EHR along with claims data, medical evidence, and research to facilitate proactive care.
4) Check Point Software Technologies Ltd. (CHKP)
|Industry:||Security Software & Services|
Check Point Software Technologies Ltd. has a Net Margin of 54.19%, a Return on Assets of 15.96%, a Current Ratio of 4.18, and a Quick Ratio of 4.18. The short interest was 1.71% as of 06/12/2012. Check Point Software Technologies Ltd. develops, markets, and supports a range of software, and combined hardware and software products and services for information technology (IT) security worldwide. It offers network and gateway security solutions that enable its customers to implement their security policies on network traffic between internal networks and the Internet, as well as between internal networks and private networks that are shared with partners; endpoint security solutions, which provide various software blades that run on individual computers connected to the network, such as desktop computers, laptop computers, and other mobile devices; and security management solutions to ensure consistent operations in accordance with an enterprise's security policy. The company also offers technical services comprising technical customer support programs and plans, such as enterprise based support and collaborative enterprise support; certification and educational training on the checkpoint's products; and professional services in implementing, upgrading, and optimizing checkpoint's products, including design planning, security implementation, and project management services.
5) Altera Corp. (ALTR)
|Industry:||Semiconductor - Specialized|
Altera Corp. has a Net Margin of 34.64%, a Return on Assets of 15.82%, a Current Ratio of 4.07, and a Quick Ratio of 3.96. The short interest was 1.85% as of 06/12/2012. Altera Corporation, a semiconductor company, designs, manufactures, and markets programmable logic devices (PLD), HardCopy application-specific integrated circuit (ASIC) devices, pre-defined design building blocks, and associated development tools. The company's PLDs consist of field-programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs), which are standard semiconductor integrated circuits or chips to perform desired logic functions in the electronic systems; and HardCopy structured ASIC devices that comprise transition customer designs from high-density FPGAs to low-cost non-programmable implementations for volume production. Its products primarily include Stratix series high-end, system-level FPGAs; Arria series mid-range transceiver and embedded processor equipped FPGAs; Cyclone series low-cost transceiver and embedded processor equipped FPGAs; MAX series CPLDs; and HardCopy ASICs. The company's products also comprise intellectual property cores in hard and soft forms that are pre-verified building blocks that execute system-level functions; and development tools consisting primarily of the Quartus II software for design entry, design compilation, design verification, and device programming.
6) Agilent Technologies Inc. (A)
|Industry:||Scientific & Technical Instruments|
Agilent Technologies Inc. has a Net Margin of 16.27%, a Return on Assets of 12.22%, a Current Ratio of 3.28, and a Quick Ratio of 2.76. The short interest was 1.26% as of 06/12/2012. Agilent Technologies, Inc. provides bio-analytical and electronic measurement solutions to the communications, electronics, life sciences, and chemical analysis industries worldwide. Its Electronic Measurement segment offers electronic measurement instruments and systems, and software design tools that are used in the design, development, manufacture, installation, deployment, and operation of electronics equipment and microscopy products. Its products consist of communications and general purpose test products.
7) QUALCOMM Incorporated (QCOM)
QUALCOMM Incorporated has a Net Margin of 28.09%, a Return on Assets of 12.95%, a Current Ratio of 3.45, and a Quick Ratio of 3.30. The short interest was 1.18% as of 06/12/2012. QUALCOMM Incorporated designs, develops, manufactures, and markets digital telecommunications products and services. It operates in four segments: Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL), Qualcomm Wireless and Internet (QWI), and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access (OFDMA), and other technologies for use in voice and data communications, networking, application processing, multimedia, and global positioning systems.
8) Chunghwa Telecom Co. Ltd. (CHT)
|Industry:||Telecom Services - Domestic|
Chunghwa Telecom Co. Ltd. has a Net Margin of 23.58%, a Return on Assets of 10.81%, a Current Ratio of 2.22, and a Quick Ratio of 2.11. The short interest was 0.45% as of 06/12/2012. Chunghwa Telecom Co., Ltd. provides integrated telecommunications services primarily in Taiwan. Its primary services include domestic fixed communications services, including local and domestic long distance telephone services, local and domestic long distance leased line services, multimedia on demand services, and domestic data services, as well as broadband access services, including ADSL and FTTx services; and mobile communications services comprising mobile and paging services, as well as sale of mobile handsets and data cards. The company also provides Internet services, including HiNet Internet services, Internet value-added services, data communication services, and Internet data center services; and international fixed communications services that consist of international long distance telephone services, international leased line services, international data services, and satellite services.
9) ARM Holdings plc (ARMH)
|Industry:||Semiconductor - Specialized|
ARM Holdings plc has a Net Margin of 25.28%, a Return on Assets of 10.71%, a Current Ratio of 2.87, and a Quick Ratio of 2.86. The short interest was 1.72% as of 06/12/2012. ARM Holdings plc designs reduced instruction set computing (RISC) microprocessors, physical intellectual property, and related technology and software. Its products and services include 16/32-bit RISC microprocessors cores, data engines, graphics intellectual property, and on-chip fabric intellectual property; embedded software; physical intellectual property; development tools; and consulting, support, and maintenance services. The company licenses and sells its technology and products to electronics companies, which in turn manufacture, market, and sell microprocessors, application-specific integrated circuits, and application-specific standard processors to systems companies for incorporation into various end products.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.