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This list is meant to serve as a starting point for investors. A lot of data has been provided so it should be relatively easy for an investor to scroll down the list and decide if the stock warrants further attention. If you find the stock appealing, you can dig deeper and see if meets with your investment criteria. To help the novice investor we have put out this guideline which could prove to be useful in the selection process. "Our suggested guidelines when searching for new investment ideas.

A lot of key ratios will be used in this article and it would be good for investors to get a handle on some of the more important key ratios listed below.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of one year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

Price to tangible book is obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to.

The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than they are making. This situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for some time. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever. If your tolerance for risk is low, look for similar companies with the same or higher yields, but with lower payout ratios.

Long-term debt-to-equity ratio is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase, the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.

Operating cash flow is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt. The cash flow is what pays the bills.

Free cash flow yield is obtained by dividing free cash flow per share by the current price of each share. Generally lower ratios are associated with an unattractive investment and vice versa. Free cash flow takes into account capital expenditures and other ongoing costs associated with the day to day to functions of the business. In our view free cash flow yield is a better valuation metric then earnings yield because of the above factors.

Current Ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing future earnings. Ideally the company should have a ratio of 1 or higher.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa. Lower ratios are generally more attractive. If a company generated $400 million in cash flow and then spent $100 million on capital expenditure, then its free cash flow is $300 million. If the share price is $100 and the free cash flow per share is $5, then the company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry. This gives you an idea of how the company you are interested in holds up to the other companies within the industry.

Cash ratio is the ratio of the company's total cash and cash equivalents to its current liabilities; this ratio is used as a measure of a company's liquidity. It allows investors to determine how fast the company would be able to pay its short term debts if push came to shove. Higher numbers are better because it makes it easier for a company to ask for new loans, increase in credit lines, etc.

Retention ratio is the amount of net income that is not paid out as dividends. In other words, it is the money the company retains that can be used to grow the business, etc. It is calculated by subtracting 1 from the dividend ratio.

Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa. A more detailed list of key ratios can be obtained from here.

Company: National Oilwell Varco (NYSE:NOV)

Brief Overview

  1. 5 year sales growth = 10.72%
  2. 5 year EPS growth = 8.7%
  3. Short Ratio = 1.2
  4. Relative Strength 52 weeks = 43
  5. Cash Flow 5-year Average = 4.71
  6. Profit Margin = 13.87%
  7. Operating Margin = 20.27%
  8. Quarterly Revenue Growth = 36.8%
  9. Quarterly Earnings Growth = 48.9%
  10. Operating Cash Flow = 2.10B
  11. Levered Free Cash Flow = 1.50B
  12. Beta = 2.05
  13. Percentage Held by Institutions = 92.4%
  14. 52 week change = -17%

Growth

  1. Net Income ($mil) 12/2011 = 1994
  2. Net Income ($mil) 12/2010 = 1667
  3. Net Income ($mil) 12/2009 = 1469
  4. Net Income Reported Quarterly ($mil) = 605
  5. EBITDA ($mil) 12/2011 = 3517
  6. EBITDA ($mil) 12/2010 = 2954
  7. EBITDA ($mil) 12/2009 = 2751
  8. Cash Flow ($/share) 12/2011 = 6.08
  9. Cash Flow ($/share) 12/2010 = 5.28
  10. Cash Flow ($/share) 12/2009 = 5.05
  11. Sales ($mil) 12/2011 = 14658
  12. Sales ($mil) 12/2010 = 12156
  13. Sales ($mil) 12/2009 = 12712
  14. Annual EPS before NRI 12/2007 = 3.76
  15. Annual EPS before NRI 12/2008 = 5.17
  16. Annual EPS before NRI 12/2009 = 3.89
  17. Annual EPS before NRI 12/2010 = 4.09
  18. Annual EPS before NRI 12/2011 = 4.77

Dividend history

  1. Dividend Yield = 0.70
  2. Dividend Yield 5 Year Average = 0.32

Dividend sustainability

  1. Payout Ratio = 0.09
  2. Payout Ratio 5 Year Average = 0.05

Performance

  1. ROE 5 Year Average = 15.18
  2. Current Ratio = 2.36
  3. Current Ratio 5 Year Average = 2.14
  4. Quick Ratio = 1.49
  5. Cash Ratio = 0.88
  6. Interest Coverage Quarterly = 110.13

Notes

Net income came in at $605 million for the second quarter, an increase of 25% from a year earlier. It earned 1.42 per share compared to $1.13 per share a year ago. Without charges, it earned $1.46 per share. Revenues surged by 35% to $4.7 billion. Over the past five quarters, it has experienced a growth rate of roughly 29%. Net income has also increased for the past three quarters in a row. At this rate net income for the year could top the $2.4 billion mark. It also sports a splendid interest coverage ratio of 110.

Company: Devon Energy (NYSE:DVN)

Brief Overview

  1. Sales vs 1 year ago = 15.8%
  2. Levered Free Cash Flow = -2.56B
  3. Relative Strength 52 weeks = 34
  4. Cash Flow 5-year Average = 12.31
  5. Profit Margin = 44.12%
  6. Quarterly Revenue Growth = 1.6%
  7. Quarterly Earnings Growth = -5.5%
  8. Operating Cash Flow = 5.99B
  9. Beta = 1.28
  10. Percentage Held by Institutions = 78%
  11. Short Percentage of Float = 1.6%
  12. 52 week change = -29%
  13. 5 year sales growth rate = -3.2%
  14. Long term debt to equity = 0.31

Growth

  1. Net Income ($mil) 12/2011 = 4704
  2. Net Income ($mil) 12/2010 = 4550
  3. Net Income ($mil) 12/2009 = -2479
  4. Net Income Reported Quarterly ($mil) = 393
  5. EBITDA ($mil) 12/2011 = 6890
  6. EBITDA ($mil) 12/2010 = 5861
  7. EBITDA ($mil) 12/2009 = -2069
  8. Cash Flow ($/share) 12/2011 = 11.92
  9. Cash Flow ($/share) 12/2010 = 11.02
  10. Cash Flow ($/share) 12/2009 = 8.8
  11. Sales ($mil) 12/2011 = 11454
  12. Sales ($mil) 12/2010 = 9940
  13. Sales ($mil) 12/2009 = 8015
  14. Annual EPS before NRI 12/2007 = 6
  15. Annual EPS before NRI 12/2008 = 9.91
  16. Annual EPS before NRI 12/2009 = 4.03
  17. Annual EPS before NRI 12/2010 = 6.42
  18. Annual EPS before NRI 12/2011 = 6.14

Dividend history

  1. Dividend Yield = 1.40
  2. Dividend Yield 5 Year Average = 0.90
  3. Dividend 5 year Growth = 5.6%

Dividend sustainability

  1. Payout Ratio = 0.06
  2. Payout Ratio 5 Year Average = 0.11

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 9.8
  2. 5ROE 5 Year Average = 16.02
  3. Current Ratio 12/2011 = 1.45
  4. Current Ratio 5 Year Average = 1.06
  5. Quick Ratio = 1.38
  6. Cash Ratio = 1.18
  7. Interest Coverage Quarterly = 8.02
  8. Retention rate 94%

Notes

It is trading close to its 3 years lows and appears to be trying to put in a bottom. Investors willing to take a bit of risk could be rewarded well in the years to come provided you have an investing time line of 3-5 years as the ride up could be rather volatile. One strategy would be to sell puts with strikes in the 50-51 ranges. If the shares are assigned your entry price should be well below its three year low when the premium is factored in.

Company: Kodiak Oil Gas (NYSE:KOG)

Brief Overview

  1. Sales vs 1 year ago = 287%
  2. Sales vs 1 quarter ago = 494%
  3. Long term debt to equity ratio = 0.73
  4. Profit Margin = 7%
  5. Operating Margin = 18.5%
  6. Quarterly Revenue Growth = 499%
  7. Levered Free Cash Flow = - $1.07B
  8. Operating Cash Flow = 103M
  9. Beta = 3.27
  10. Percentage Held by Institutions = 65.8
  11. Short Percentage of Float = 4.4%
  12. 5 year sales growth rate 86.8%

Growth

  1. Net Income ($mil) 12/2011 = 4
  2. Net Income ($mil) 12/2010 = -2
  3. Net Income ($mil) 12/2009 = -3
  1. EBITDA ($mil) 12/2011 = 51
  2. EBITDA ($mil) 12/2010 = 6
  3. EBITDA ($mil) 12/2009 = 1
  4. Cash Flow ($/share) 12/2011 = 0.32
  5. Cash Flow ($/share) 12/2010 = 0.07
  6. Cash Flow ($/share) 12/2009 = 0.01
  7. Sales ($mil) 12/2011 = 120
  8. Sales ($mil) 12/2010 = 25
  9. Sales ($mil) 12/2009 = 11
  1. Annual EPS before NRI 12/2007 = -0.05
  2. Annual EPS before NRI 12/2008 = -0.1
  3. Annual EPS before NRI 12/2009 = -0.02
  4. Annual EPS before NRI 12/2010 = 0.03
  5. Annual EPS before NRI 12/2011 = 0.17

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 50
  2. ROE 5 Year Average = -7.06
  3. Current Ratio = 1.76
  4. Current Ratio 5 Year Average = 3.93
  5. Quick Ratio = 1.5
  6. Interest coverage = 1.60

Notes

A spectacular quarterly revenue growth rate of 499% and an estimated EPS growth rate of 50% for the next 3-5 years make this play worth taking a closer look at. It also sports a high beta which makes it a good candidate to sell puts on. Selling puts enables one to get into the stock at price of one's choosing and as it has a high beta the puts should fetch high premiums.

Company: Intuitive Surgical (NASDAQ:ISRG)

Brief Overview

  1. 5 year sales growth rate = 28.7%
  2. Sales vs 1 year ago = 24%
  3. Levered Free Cash Flow = 545M
  4. 5 year EPS growth rate = 34%
  5. Short Ratio = 5.3
  6. Relative Strength 52 weeks = 92
  7. Cash Flow 5-year Average = 6.72
  8. Profit Margin = 28.9%
  9. Operating Margin = 40%
  10. Quarterly Revenue Growth = 26%
  11. Quarterly Earnings Growth = 31%
  12. Operating Cash Flow = 754M
  13. Beta = 1.54
  14. Percentage Held by Institutions = 88.1%
  15. Long term debt to equity ratio = 0.00

Growth

  1. Net Income ($mil) 12/2011 = 495
  2. Net Income ($mil) 12/2010 = 382
  3. Net Income ($mil) 12/2009 = 233
  4. Net Income Reported Quarterly ($mil) = 144
  5. EBITDA ($mil) 12/2011 = 756
  6. EBITDA ($mil) 12/2010 = 613
  7. EBITDA ($mil) 12/2009 = 431
  8. Cash Flow ($/share) 12/2011 = 13.89
  9. Cash Flow ($/share) 12/2010 = 10.75
  10. Cash Flow ($/share) 12/2009 = 7.3
  11. Sales ($mil) 12/2011 = 1757
  12. Sales ($mil) 12/2010 = 1413
  13. Sales ($mil) 12/2009 = 1052
  14. Annual EPS before NRI 12/2007 = 3.7
  15. Annual EPS before NRI 12/2008 = 5.12
  16. Annual EPS before NRI 12/2009 = 6.23
  17. Annual EPS before NRI 12/2010 = 9.47
  18. Annual EPS before NRI 12/2011 = 12.32

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 19.54
  2. Current Ratio = 4.58
  3. Current Ratio 5 Year Average = 4.67
  4. Quick Ratio = 4.22
  5. Cash Ratio = 3.3

Notes

The stock is extremely overbought, and ideally, investors should wait for a test of the 400 ranges before opening up long term positions in this play. It has already experienced a sharp drop from 550 t0 480 and could potentially drop all the way to $375 before bottoming out. Our suggestion would be to divide your money into 2-3 lots and deploy one on a test of the 400 range and one if and when it dips to 375 or below. The third lot can be deployed when it starts to trend up again. Another option would be to wait for it to test the 400 range and then sell puts at strikes you would mind owning the stock at. You can sell a second lot of puts if it trades down to 375. If the shares are assigned to your account, your net cost will be well below 400 and 375, depending on how many puts you sold.

Company: Bank Montreal (NYSE:BMO)

Brief Overview

  1. Relative Strength 52 weeks = 47
  2. Sales vs 1 year ago = 16%
  3. Sales vs 1 quarter ago = 19%
  4. 52 week change = -12%
  5. Short ratio = 6.5%
  6. Cash Flow 5-year Average = 5.13
  7. Profit Margin = 26%
  8. Operating Margin = 3.6
  9. Quarterly Revenue Growth = 24
  10. Quarterly Earnings Growth = 27
  11. Operating Cash Flow = 13.7B
  12. Beta = 1.15
  13. 5 year sales growth = - 1.6%
  14. 5 years EPS growth = 5.08
  15. EPS vs 1 year ago = 21.30%

Growth

  1. Net Income ($mil) 12/2011 = 3312
  2. Net Income ($mil) 12/2010 = 2707
  3. Net Income ($mil) 12/2009 = 1534
  1. EBITDA ($mil) 12/2011 = 6070
  2. EBITDA ($mil) 12/2010 = 4547
  3. EBITDA ($mil) 12/2009 = 3017
  4. Net Income Reported Quarterly ($mil) = 994
  1. Cash Flow ($/share) 12/2011 = 5.91
  2. Cash Flow ($/share) 12/2010 = 5.4
  3. Cash Flow ($/share) 12/2009 = 3.75
  1. Sales ($mil) 12/2011 = 17294
  2. Sales ($mil) 12/2010 = 15371
  3. Sales ($mil) 12/2009 = 14982
  1. Annual EPS before NRI 12/2007 = 5.17
  2. Annual EPS before NRI 12/2008 = 4.37
  3. Annual EPS before NRI 12/2009 = 2.86
  4. Annual EPS before NRI 12/2010 = 4.73
  5. Annual EPS before NRI 12/2011 = 5.19

Dividend history

  1. Dividend Yield = 4.9
  2. Dividend Yield 5 Year Average = 5.2
  3. Dividend 5 year Growth = 5.74

Dividend sustainability

  1. Payout Ratio = 0.50
  2. Payout Ratio 5 Year Average = 0.59

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 10
  2. 5 Year History EPS Growth = 2.83
  3. ROE 5 Year Average = 14.46
  4. Return on Investment = 10.69
  5. Debt/Total Cap 5 Year Average = 19.24
  6. Current Ratio = 1.02
  7. Current Ratio 5 Year Average = 0.95
  8. Quick Ratio = 0.94
  9. Cash Ratio = 0.47
  10. Interest Coverage Quarterly = 3.14

Conclusion

In general, a great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Consider taking some money off the table once the summer is behind us as the markets are likely to put in a multi month top that should lead to a much stronger correction. Investors looking for other ideas might find this article to be of interest: Southern Company: Get In At $38.30 Or Earn An Extra 8.8%.

Sources: EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. earnings estimates sourced from dailyfinance.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: It is imperative that you do your due diligence and then determine if the above plays meets with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: A Nice Mix Of Dividend And Growth Plays To Consider