Interested in stocks in the consumer space? To help give you ideas where to look, we focused today on consumer companies with strong liquidity. Having cash on hand can set consumer companies apart from their peers in that the cash can go towards making strategic long-term investments or acquisitions, or fuel the development of new products. Plus, it's always nice to know that your favorite companies have enough cash to cover their operating expenses for a very long time. Keeping these ideas in mind, we ran a screen you might find helpful.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
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 consumer stocks. Next, we then screened for businesses with strong profit margins (1-year operating margin>15%)(ROE [TTM]>30%). We then looked for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We did not screen out any market caps.
Do you think these stocks have strong enough fundamentals to move higher? Use our list along with your own analysis.
1) Sturm, Ruger & Co. Inc. (RGR)
Sturm, Ruger & Co. Inc. has a Operating Profit Margin of 20.34%, a Return on Equity of 35.36%, a Current Ratio of 3.08, and a Quick Ratio of 2.93. The short interest was 27.32% as of 06/24/2012. Sturm, Ruger & Company, Inc. engages in the design, manufacture, and sale of firearms in the United States. It offers single-shot, autoloading, bolt-action, and sporting rifles; shotguns; rim fire autoloading and center fire autoloading pistols; and single-action and double-action revolvers. The company also manufactures and sells accessories and replacement parts for its firearms. In addition, it provides investment castings made from steel alloys directly or through manufacturers' representatives.
2) China XD Plastics Company Ltd. (CXDC)
|Industry:||Rubber & Plastics|
China XD Plastics Company Ltd. has a Operating Profit Margin of 20.66%, a Return on Equity of 37.81%, a Current Ratio of 4.96, and a Quick Ratio of 3.82. The short interest was 6.79% as of 06/24/2012. China XD Plastics Company Limited, a specialty chemical company, through its subsidiary, Harbin Xinda Macromolecule Material Co., Ltd., engages in the development, manufacture, and distribution of modified plastics primarily for use in the fabrication of automobile parts and components in the People's Republic of China. Its modified plastics are used to fabricate various auto components, including exteriors consisting of automobile bumpers, rearview and side view mirrors, and license plate parts; interiors, such as door panels, dashboards, steering wheels, glove compartments, and safety belt components; and functional components comprising air conditioner casings, heating and ventilation casings, engine covers, and air ducts.
3) ACCO Brands Corporation (ACCO)
ACCO Brands Corporation has a Operating Profit Margin of 46.22%, a Return on Equity of 47.18%, a Current Ratio of 6.44, and a Quick Ratio of 6.44. The short interest was - as of 06/24/2012. ACCO Brands Corporation engages in the design, manufacture, marketing, and distribution of office products primarily in the United States, Australia, the United Kingdom, and Canada. The company provides traditional office products and supplies, including staplers, staples, punches, ring binders, trimmers, sheet protectors, hanging file folders, clips and fasteners, dry-erase boards, dry-erase markers, easels, bulletin boards, overhead projectors, transparencies, and laser pointers and screens under the Quartet, Rexel, Swingline, Wilson Jones, Marbig, NOBO, ACCO, Derwent, and Eastlight brads. It also offers document finishing solutions comprising binding, lamination and punching equipment, binding and lamination supplies, report covers, archival report covers, and shredders, as well as machine maintenance and repair services under the GBC brand name.
4) Monster Beverage Corporation (MNST)
|Industry:||Beverages - Soft Drinks|
Monster Beverage Corporation has a Operating Profit Margin of 27.44%, a Return on Equity of 31.99%, a Current Ratio of 4.46, and a Quick Ratio of 3.84. The short interest was 1.16% as of 06/24/2012. Monster Beverage Corporation, through its subsidiaries, develops, markets, sells, and distributes alternative beverage category beverages in the United States and internationally. The company's Direct Store Delivery segment offers carbonated energy drinks, non-carbonated dairy based coffee plus energy drinks, carbonated energy drinks containing nitrous oxide, non-carbonated dairy based espresso plus energy drinks, non-carbonated rehydration energy drinks, energy supplements, and ready-to-drink iced teas. This segment sells its products through a distributor network.
*Company profiles were sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.