Company liquidity is an important consideration in any stock analysis.Having cash on hand gives a company the power to make large acquisitions if it sees investment opportunities, a buffer for future dips in demand, and most importantly, it keeps a company open for business. For mid-cap companies, cash on hand can lead to future growth. With this idea in mind, we focus today on mid-caps that have plenty of cash to make big plays, due to strong sources of profitability. Here are some interesting ideas that explain our screen.
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 company 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. Next, we then screened for businesses with strong profitability (ROA > 10%)(1-year fiscal EPS growth rate>10%). We then screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these mid-cap stocks are worth more than their current valuations? Use our list along with your own analysis.
1) Albemarle Corp. (ALB)
Albemarle Corp. has a Return on Assets of 13.02%, a Earnings Per Share Growth Rate of 35.75%, a Current Ratio of 3.39, and a Quick Ratio of 2.33. The short interest was 3.83% as of 07/05/2012. Albemarle Corporation develops, manufactures, and markets engineered specialty chemicals.
The company's Polymer Solutions segment provides brominated, mineral, and phosphorus based flame retardants used in plastic enclosures for consumer electronics, printed circuit boards, wire and cable, electrical connectors, textiles, foam insulation, and foam seating in furniture and automobiles; and plastic and other additives, such as curatives, antioxidants, and stabilizers.
The Catalysts segment offers refinery catalysts, including hydroprocessing catalysts, fluidized catalytic cracking catalysts, and additives; organometallic co-catalysts, and metallocene components and co-catalysts for the manufacture of commodity and specialty plastics used in packaging, non-packaging, films, and injection molding; electronic materials, such as high purity metal organic products used in the production of light emitting diodes, as well as other products used in the production of solar cells; and chemical catalysts used in the production of ethylene dichloride and methylamines.
The company's Fine Chemistry segment provides elemental bromine, alkyl bromides, inorganic bromides, brominated powdered activated carbon, and bromine fine chemicals used in chemical synthesis, oil and gas well drilling and completion fluids, mercury control, paper manufacturing, water purification, and beef and poultry processing.
2) Under Armour, Inc. (UA)
|Industry:||Textile - Apparel Clothing|
Under Armour, Inc. has a Return on Assets of 12.34%, a Earnings Per Share Growth Rate of 38.23%, a Current Ratio of 3.80, and a Quick Ratio of 2.02. The short interest was 16.39% as of 07/05/2012. Under Armour, Inc. engages in the design, development, marketing, and distribution of apparel, footwear, and accessories for men, women, and youth worldwide.
The company offers its apparel in three fit types: compression, fitted, and loose that are designed to be worn in hot, cold, and changing temperatures. Its footwear products include football, baseball, lacrosse, softball and soccer cleats, as well as slides, performance training footwear, running footwear, basketball footwear, and hunting boots for athletes.
3) Fossil, Inc. (FOSL)
|Industry:||Recreational Goods, Other|
Fossil, Inc. has a Return on Assets of 20.70%, a Earnings Per Share Growth Rate of 22.20%, a Current Ratio of 3.90, and a Quick Ratio of 2.17. The short interest was 4.88% as of 07/05/2012. Fossil, Inc. designs, develops, markets, and distributes consumer fashion accessories worldwide.
The company offers watches under its proprietary brands, such as Fossil, Michele, Relic, And Zodiac; and under the licensed brand names, including Adidas, Armani Exchange, Burberry, Diesel, Dkny, Emporio Armani, Marc By Marc Jacobs, and Michael Kors.
The company designs, markets, and arranges for the manufacture of watches and accessories on behalf of mass market retailers, companies, and organizations as private label products or as premium and incentive items for use in various corporate events.
4) Lululemon Athletica Inc. (LULU)
|Industry:||Textile - Apparel Clothing|
Lululemon Athletica Inc. has a Return on Assets of 30.36%, a Earnings Per Share Growth Rate of 49.59%, a Current Ratio of 7.88, and a Quick Ratio of 6.36. The short interest was 24.84% as of 07/05/2012. lululemon athletica inc., together with its subsidiaries, designs, manufactures, and distributes athletic apparel for women, men, and female youth.
The company's line of apparel and accessories include fitness pants, shorts, tops, and jackets for healthy lifestyle activities, such as yoga, running, and general fitness. Its fitness-related accessories comprise bags, socks, underwear, yoga mats, instructional yoga DVDs, and water bottles.
5) MSC Industrial Direct Co. Inc. (MSM)
|Industry:||Industrial Equipment Wholesale|
MSC Industrial Direct Co. Inc. has a Return on Assets of 19.12%, a Earnings Per Share Growth Rate of 44.66%, a Current Ratio of 5.20, and a Quick Ratio of 2.84. The short interest was 2.43% as of 07/05/2012. MSC Industrial Direct Co., Inc., together with its subsidiaries, operates as a direct marketer and distributor of metalworking and maintenance, repair, and operations (MRO) products to industrial customers in the United States. It offers approximately 600,000 stock-keeping units representing a range of MRO products, including cutting tools; measuring instruments; tooling components; metalworking products; fasteners; flat stock; raw materials; abrasives; machinery hand and power tools; safety and janitorial supplies; plumbing supplies; materials handling products; power transmission components; and electrical supplies.
The company sells its products through its master catalogs, specialty and promotional catalogs, brochures, and the Internet to individual machine shops, Fortune 1000 companies, and government agencies, as well as markets to small, medium, and large companies in various sectors, including durable and non-durable goods manufacturing, education, government, and health care.
6) KLA-Tencor Corporation (KLAC)
|Industry:||Semiconductor Equipment & Materials|
KLA-Tencor Corporation has a Return on Assets of 16.05%, a Earnings Per Share Growth Rate of 280.12%, a Current Ratio of 4.57, and a Quick Ratio of 3.83. The short interest was 3.28% as of 07/05/2012. KLA-Tencor Corporation designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries.
tHE COMPANY offers equipment comprising wafer and integrated circuit (IC) defect monitoring, review, and classification; reticle defect inspection and metrology; packaging and interconnect inspection; critical dimension metrology; pattern overlay metrology; film thickness, surface topography, and composition measurements; measurement of in-chamber process conditions, wafer shape, and stress metrology; computational lithography tools; and yield and fab-wide data management and analysis systems. The company also provides products that serve the high brightness light emitting diode, data storage, and photovoltaic industries, as well as general materials research.
*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.