To find growth opportunities in the mid-cap level, one avenue is to select companies that have EPS growth rates of over 25%. The idea is that these companies are more established and provide a relative amount of risk reduction over small-cap stocks. To back up the growth rate projections, a company needs a high level of liquidity to fund increased production, make strategic acquisitions, and open new markets. We specifically searched for mid-cap stocks with high liquidity and EPS growth rates of over 25% for the next year in the basic materials sector. We came up with a short, but interesting list to start your research.
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 mid cap basic materials stocks. Next, we then screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We next screened for businesses that have expected earnings per share growth of more than 25 percent for next year(1-year projected EPS Growth Rate>25%).
Do you think these mid-cap stocks will break through to new highs? Use our list to help with your own analysis.
1) Allied Nevada Gold Corp. (ANV)
Allied Nevada Gold Corp. has a Current Ratio of 16.90, a Quick Ratio of 13.88, and a 1-Year Projected Earnings Per Share Growth Rate of 93.97%. The short interest was 7.57% as of 08/15/2012. Allied Nevada Gold Corp., together with its subsidiaries, engages in the evaluation, acquisition, exploration, and advancement of gold exploration and development projects. It principally operates the Hycroft Mine, an open pit heap leach gold and silver mine covering approximately 61,389 acres of mineral rights located in the west of Winnemucca, Nevada. The company is also involved in the exploration and development of various exploration properties, including Hasbrouck, Mountain View, Three Hills, Wildcat, Maverick Springs, and Pony Creek/Elliot Dome projects.
2) IAMGOLD Corp. (IAG)
IAMGOLD Corp. has a Current Ratio of 4.60, a Quick Ratio of 3.86, and a 1-Year Projected Earnings Per Share Growth Rate of 31.58%. The short interest was 0.44% as of 08/15/2012. IAMGOLD Corporation, a mid-tier gold mining company, engages in the exploration, development, and production of mineral resource properties. It primarily explores for gold, silver, zinc, copper, niobium, diamonds, and other metals. The company holds interests in five operating gold mines, a niobium mine, a diamond royalty, and exploration and development projects located in Africa and the Americas. Its development projects include the Westwood project located in the Abitibi region, Qubec, Canada; the Quimsacocha project located in southern Ecuador; and the Camp Caiman project located in northeastern French Guiana, South America.
3) Dril-Quip, Inc. (DRQ)
|Industry:||Oil & Gas Equipment & Services|
Dril-Quip, Inc. has a Current Ratio of 5.69, a Quick Ratio of 3.42, and a 1-Year Projected Earnings Per Share Growth Rate of 29.25%. The short interest was 9.54% as of 08/15/2012. Dril-Quip, Inc. designs, manufactures, sells, and services engineered offshore drilling and production equipment for use in deepwater, harsh environment, and severe service applications worldwide. The Company's principal products consist of subsea and surface wellheads, subsea and surface production trees, subsea control systems and manifolds, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, liner hangers, wellhead connectors, and diverters. Its products are primarily used to explore for oil and gas on offshore drilling rigs, such as floating rigs and jack-up rigs; drilling and production of oil and gas wells on offshore platforms; tension leg platforms, which are floating production platforms connected to the ocean floor via vertical mooring tethers; Spars, a floating cylindrical structure; and floating production, storage, and offloading monohull moored vessels.
4) Cytec Industries Inc. (CYT)
Cytec Industries Inc. has a Current Ratio of 2.73, a Quick Ratio of 2.34, and a 1-Year Projected Earnings Per Share Growth Rate of 69.80%. The short interest was 4.04% as of 08/15/2012. Cytec Industries Inc., a specialty chemicals and materials company, engages in developing, manufacturing, and selling chemical products primarily for aerospace composites, structural adhesives, automotive and industrial coatings, electronics, inks, mining, and plastics markets. It operates in four segments: Engineered Materials, In-Process Separation, Additive Technologies, and Coating Resins. The Engineered Materials segment offers aerospace-qualified and industrial-grade prepregs, resin infusion systems, structural/surfacing adhesives, pressure sensitive adhesives, and formulated resins, and carbon fiber reinforcements.
*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.