It's understandable that some investors prefer to steer clear of large cap stocks because of the perception that the glory days of fast growth have come and gone. However, with the right analysis it is possible to find opportunities with these more established companies. Today we focused on profit and liquidity. All of the large cap stocks profiled below are strong in both categories. Take a look to see if any spark your curiosity.
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 large cap stocks. From here, we then looked for companies 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 sectors.
Do you think these large-cap stocks offer both value and growth? Use our screened list as a starting point for your own analysis.
1) 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 1.22% as of 08/03/2012. 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.
2) Chemical & Mining Co. of Chile Inc. (SQM)
|Industry:||Chemicals - Major Diversified|
Chemical & Mining Co. of Chile Inc. has a Operating Profit Margin of 35.87%, a Return on Equity of 31.65%, a Current Ratio of 3.23, and a Quick Ratio of 2.00. The short interest was 0.47% as of 08/03/2012. Chemical and Mining Company of Chile Inc. engages in the production and sale of fertilizers and specialty chemicals in Chile and internationally. The company's specialty plant nutrients include potassium nitrate, sodium nitrate, sodium potassium nitrate, and specialty blends for crops, such as vegetables, fruits, flowers, potatoes, and cotton, as well as Ultrasol for application via fertigation; Qrop for field application; Speedfol for foliar application; Allganic for organic farming; and Nutrilake for aquaculture. It also produces iodine and iodine derivatives, which are used in a range of medical, pharmaceutical, agricultural, and industrial applications, including X-ray contrast media, polarizing films for liquid crystal displays (LCDs), antiseptics, biocides, and disinfectants; and in the synthesis of pharmaceuticals, herbicides, electronics, pigments, dye components, and heat stabilizers. In addition, the company provides lithium carbonate for use in various applications comprising batteries, frits for the ceramic and enamel industries, heat-resistant glass, primary aluminum, lithium bromine for use in air conditioner equipment, and continuous casting powder for steel extrusion, pharmaceuticals, and lithium derivatives; and lithium hydroxide, which is used as a raw material in the lubricating grease industry.
3) Coach, Inc. (COH)
|Industry:||Textile - Apparel Footwear & Accessories|
Coach, Inc. has a Operating Profit Margin of 31.74%, a Return on Equity of 53.78%, a Current Ratio of 2.82, and a Quick Ratio of 2.06. The short interest was 4.92% as of 08/03/2012. 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 bag, 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) Southern Copper Corp. (SCCO)
Southern Copper Corp. has a Operating Profit Margin of 54.64%, a Return on Equity of 58.93%, a Current Ratio of 3.56, and a Quick Ratio of 2.92. The short interest was 6.55% as of 08/03/2012. Southern Copper Corporation engages in mining, exploring, producing, smelting, and refining copper and other minerals in Peru, Mexico, and Chile. It is involved in the mining, milling, and flotation of copper ore to produce copper and molybdenum concentrates; smelting of copper concentrates to produce anode copper; and refining of anode copper to produce copper cathodes, as well as refined silver. The company operates Toquepala and Cuajone mines in the Andes Mountains located to the southeast of the city of Lima, Peru, as well as a smelter and refinery in the coastal city of Ilo, Peru. It also operates La Caridad and Buenavista copper mines, and smelting and refining plants in Mexico.
5) Vertex Pharmaceuticals Incorporated (VRTX)
Vertex Pharmaceuticals Incorporated has a Operating Profit Margin of 20.58%, a Return on Equity of 44.78%, a Current Ratio of 4.02, and a Quick Ratio of 3.66. The short interest was 3.31% as of 08/03/2012. 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.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.