Wizened investors know that there are great expansion opportunities in a category like basic materials. This is especially true at the small cap level, but not without increased risk. We searched for stocks that have the following criteria: considerable cash reserves and significant estimated growth in the next year. When a company is well funded, it has the means to realize strategic goals, make acquisitions, weather economic downturns, and in short, achieve the predicted growth and produce gains for the investor. We came up with a short, but promising list of basic materials stocks for you to investigate.
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. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.
We first looked for small cap basic materials stocks. We then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then looked for companies that have high future earnings per share growth forecasts(1-year projected EPS Growth Rate>25%).
Do you think these small-cap stocks should be trading higher? Use our list to help with your own analysis.
1) Hecla Mining Co. (HL)
Hecla Mining Co. has a Current Ratio of 3.63, a Quick Ratio of 3.38, and a 1-Year Projected Earnings Per Share Growth Rate of 87.50%. The short interest was 9.14% as of 08/07/2012. Hecla Mining Company, together with its subsidiaries, discovers, acquires, develops, produces, and markets precious and base metals worldwide. It offers gold and silver to precious metals traders; and lead, zinc, and bulk concentrates to custom smelters. The company has two operating mines and exploration properties that include the Greens Creek mine located in Alaska and the Lucky Friday mine located in northern Idaho. Hecla Mining Company was founded in 1891 and is based in Coeur d'Alene, Idaho.
2) Rentech, Inc. (RTK)
Rentech, Inc. has a Current Ratio of 3.77, a Quick Ratio of 3.62, and a 1-Year Projected Earnings Per Share Growth Rate of 133.30%. The short interest was 7.34% as of 08/07/2012. Rentech, Inc., through its subsidiaries, owns and develops technologies that enable the production of synthetic fuels and renewable power when integrated with third-party technologies in the United States. Its clean energy technology portfolio includes the Rentech-SilvaGas and the Rentech-ClearFuels biomass gasification technologies, which produce synthesis gas from biomass and waste materials for the production of renewable power and fuels. The company also owns the patented Rentech Process based on Fischer-Tropsch chemistry that converts synthesis gas from gasification technologies into complex hydrocarbons, which is upgraded into fuels or chemicals.
3) Horsehead Holding Corp. (ZINC)
|Industry:||Industrial Metals & Minerals|
Horsehead Holding Corp. has a Current Ratio of 4.08, a Quick Ratio of 3.41, and a 1-Year Projected Earnings Per Share Growth Rate of 288.89%. The short interest was 8.70% as of 08/07/2012. Horsehead Holding Corp., together with its subsidiaries, produces and sells specialty zinc and zinc-based products in North America. The company's products include PW zinc metal, which is used to provide a protective coating to various fabricated products, including pipe and guard rails, heat exchangers, and telecommunications towers, as well as for the production of brass; and SSHG zinc metal that is used as feed for the manufacture of high-purity zinc powder and zinc alloys. It also offers zinc oxide for the production of tire and rubber products, chemicals, ceramics, plastics, paints, lubricating oils, and pharmaceuticals.
4) Silvercorp Metals Inc. (SVM)
Silvercorp Metals Inc. has a Current Ratio of 4.48, a Quick Ratio of 4.31, and a 1-Year Projected Earnings Per Share Growth Rate of 28.57%. The short interest was 5.14% as of 08/07/2012. Silvercorp Metals Inc., together with its subsidiaries, engages in the acquisition, exploration, development, and mining of precious and base metal properties in China and Canada. It operates four silver-lead-zinc mines comprising the Ying, TLP, HPG, and LM mines located in the Ying Mining District in the Henan Province of China.
*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.