Large cap stocks did not grow to their size though poor management and lack of focus. These companies had to scale their businesses by focusing on producing actual profits. When a company can do that, and is successful enough to build up cash reserves in the bank, you know that company is doing it right. Today, we focus on large caps that have put spending money in their pockets by commanding strong earnings over time. We think you'll find the list interesting.
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.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock, as it directly correlates to the profitability of the company as a whole.
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 stocks. We then looked for businesses with strong profitability (ROA > 10%)(1-year fiscal EPS growth rate>10%). We then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these large-cap stocks should be trading higher? Use this list as a starting-off point for your own analysis.
1) Intuitive Surgical, Inc. (ISRG)
|Industry:||Medical Appliances & Equipment|
Intuitive Surgical, Inc. has a Return on Assets of 18.11%, a Earnings Per Share Growth Rate of 30.00%, a Current Ratio of 4.58, and a Quick Ratio of 4.20. The short interest was 2.58% as of 06/29/2012. Intuitive Surgical, Inc. designs, manufactures, and markets da Vinci surgical systems for various surgical procedures, including urologic, gynecologic, cardiothoracic, general, and head and neck surgeries. Its da Vinci surgical system consists of a surgeon's console or consoles, a patient-side cart, a 3-D vision system, Firefly fluorescence imaging product, da Vinci skills simulator, and proprietary wristed' instruments. The company's da Vinci surgical system translates the surgeon's natural hand movements on instrument controls at the console into corresponding micro-movements of instruments positioned inside the patient through small puncture incisions, or ports.
2) Vertex Pharmaceuticals Incorporated (VRTX)
Vertex Pharmaceuticals Incorporated has a Return on Assets of 15.71%, a Earnings Per Share Growth Rate of 103.73%, a Current Ratio of 4.02, and a Quick Ratio of 3.66. The short interest was 4.07% as of 06/29/2012. Vertex Pharmaceuticals Incorporated engages in discovering, developing, manufacturing, and commercializing small molecule drugs for the treatment of serious diseases worldwide. Its products include telaprevir, a prescription medicine used for the treatment of patients with genotype 1 hepatitis C virus [HCV] infection; and Ivacaftor, a prescription medicine used for the treatment of cystic fibrosis. The company markets its products under the INCIVEK brand name in the United States and Canada; INCIVO brand in the United Kingdom, Germany, France, Sweden, Austria, Finland, Denmark, Switzerland, and Norway; KALYDECO brand in the United States; and TELAVIC brand in Japan.
3) Coach, Inc. (COH)
|Industry:||Textile - Apparel Footwear & Accessories|
Coach, Inc. has a Return on Assets of 34.69%, a Earnings Per Share Growth Rate of 25.53%, a Current Ratio of 2.82, and a Quick Ratio of 2.06. The short interest was 2.06% as of 06/29/2012. Coach, Inc. designs and markets accessories and gifts for women and men in the United States and internationally. It primarily offers handbags, women's and men's bags, accessories, business cases, footwear, wearables, jewelry, sunwear, travel bags, watches, and fragrance products. The company's accessories, include money pieces, wristlets, cosmetic cases, wallets, card cases, time management and electronic accessories, key rings, charms, and women's and men's belts; business cases, such as computer bags, messenger-style bags, and totes; wearables comprise jackets, sweaters, gloves, hats, and scarves; jewelry consisting of bangle bracelets, necklaces, rings, and earrings; and luggage and related accessories, such as travel kits and valet trays.
4) Chipotle Mexican Grill, Inc. (CMG)
Chipotle Mexican Grill, Inc. has a Return on Assets of 17.22%, a Earnings Per Share Growth Rate of 19.94%, a Current Ratio of 4.43, and a Quick Ratio of 4.35. The short interest was 15.84% as of 06/29/2012. Chipotle Mexican Grill, Inc. develops and operates fast-casual, fresh Mexican food restaurants in the United States, Canada, and England. Its restaurants primarily offer burritos, tacos, burrito bowls, and salads. As of December 31, 2011, it operated 1,230 restaurants, which includes 1 ShopHouse Southeast Asian Kitchen.
5) Fastenal Company (FAST)
|Industry:||General Building Materials|
Fastenal Company has a Return on Assets of 22.68%, a Earnings Per Share Growth Rate of 34.43%, a Current Ratio of 5.71, and a Quick Ratio of 2.97. The short interest was 4.47% as of 06/29/2012. Fastenal Company, together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies in the United States and internationally. It offers fastener product line under two categories, which include threaded fasteners, such as bolts, nuts, screws, studs, and related washers that are used in manufactured products and building projects, as well as in the maintenance and repair of machines and structures; and miscellaneous supplies and hardware comprising various pins and machinery keys, concrete anchors, metal framing systems, wire ropes, strut products, rivets, and related accessories. The company serves the construction market, which consists of general, electrical, plumbing, sheet metal, and road contractors; and manufacturing market, including original equipment manufacturers, and maintenance and repair operations, as well as other users, such as farmers, truckers, railroads, mining companies, federal, state and local governmental entities, schools, and retail trades.
*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.