The industrial sector may not have the buzz of hotter sectors like pharmaceuticals and technology, but experienced investors know to leave no stone unturned. Today we screened for industrial stocks that are well positioned due to ample cash reserves. These are companies that have the resources to grow and expand, as well as weather economic ups and downs. Additionally, the stocks all have a steady track record of producing profits. The companies listed below are worthy of further investigation.
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).
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.
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.
We first looked for industrial stocks. We next screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). From here, we then looked for companies that have strong profitability (1-year fiscal EPS Growth Rate>10%)(ROE [TTM]>30%). We did not screen out any market caps.
Do you think these stocks will trade at a higher valuation? Use our list along with your own analysis.
1) Coleman Cable, Inc. (CCIX)
|Industry:||Industrial Electrical Equipment|
Coleman Cable, Inc. has a Current Ratio of 5.20, a Quick Ratio of 2.85, an Earnings Per Share Growth Rate of 362.80%, and a Return on Equity of 61.90%. The short interest was 3.42% as of July 27, 2012. Coleman Cable, Inc. designs, develops, manufactures, and supplies electrical wire and cable products for consumer, commercial, and industrial applications primarily in the United States and Canada.
It provides industrial wire and cable products, including portable cords, machine tool wiring, building wires, welding, mining, pump, control, stage/lighting, diesel/locomotive, instrumentation, tray, thermocouple, high temperature, and metal clad cables, as well as other power cord products under the Royal, Seoprene, Copperfield, Continental, Triangle, and Corra/Clad brand names.
The company also offers assembled wire and cable products comprising various types of extension cords, ground fault circuit interrupters, portable lighting, retractable reels, holiday items, solar lighting, recreational vehicle cords and adapters, and surge and strip products, as well as booster cables, battery cables, and battery accessories for the automotive aftermarket.
2) Transdigm Group Incorporated (TDG)
|Industry:||Aerospace/Defense Products & Services|
TransDigm Group Incorporated has a Current Ratio of 3.88, a Quick Ratio of 2.32, an Earnings Per Share Growth Rate of 11.37%, and a Return on Equity of 32.39%. The short interest was 1.69% as of July 27, 2012. TransDigm Group Incorporated designs, produces, and supplies engineered aircraft components for use on commercial and military aircraft principally in the United States.
The company's products include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, pumps and valves, power conditioning devices, AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, cockpit displays, aircraft audio systems, lavatory components, engineered interior surfaces, and lighting and control technology.
Its customers comprise distributors of aerospace components; commercial airlines, including national and regional airlines; commercial transport and regional and business aircraft original equipment manufacturers (OEMs); various armed forces of the United States and foreign governments; defense OEMs; system suppliers; and various other industrial customers.
3) Sturm, Ruger & Company Inc. (RGR)
|Industry:||Aerospace/Defense Products & Services|
Sturm, Ruger & Co. Inc. has a Current Ratio of 3.08, a Quick Ratio of 2.93, an Earnings Per Share Growth Rate of 42.71%, and a Return on Equity of 35.36%. The short interest was 30.31% as of July 27, 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.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.