Everyone loves to see healthy profits on the books of their favorite companies, but what good is that profit if the company is swamped in debt? Worse yet, what if those debt levels are on the rise? Then so too should the gross profits, or a company can quickly find itself in trouble. At the extremes, one unexpected bump in the market, or drawn-out lull in the demand, could push a debt-ridden company into bankruptcy. Today we looked for large cap companies that are well positioned to avoid those circumstances, by having simultaneously maintained high levels of profitability along with low levels of debt. Our list today identifies some intriguing companies with these traits; we think you will be inspired to do additional research on them.
The debt/equity ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
The long-term debt/equity ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
The net margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue.
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.
We first looked for large cap stocks. We then looked for businesses that have maintained a sound capital structure (D/E Ratio<.3). We then looked for companies that have maintained a sound long term capital structure (Long Term D/E Ratio<.1). We then screened for businesses that have strong bottom line profitability (Net Margin [TTM]>10%)(1-year operating margin>15%). We did not screen out any sectors.
Do you think these large-cap stocks can offer attractive returns? Use our list along with your own analysis.
1) Fastenal Company (NASDAQ:FAST)
|Industry||General Building Materials|
|Long Term Debt/Equity Ratio||0.00|
|Operating Profit Margin||21.20%|
Fastenal Company, together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies in the United States and internationally. It offers fastener product line under two categories, which include threaded fasteners, such as bolts, nuts, screws, studs, and related washers that are used in manufactured products and building projects, as well as in the maintenance and repair of machines and structures; and miscellaneous supplies and hardware comprising various pins and machinery keys, concrete anchors, metal framing systems, wire ropes, strut products, rivets, and related accessories.
The company serves the construction market, which consists of general, electrical, plumbing, sheet metal, and road contractors; and manufacturing market, including original equipment manufacturers, and maintenance and repair operations, as well as other users, such as farmers, truckers, railroads, mining companies, federal, state and local governmental entities, schools, and retail trades.
2) The Mosaic Company (NYSE:MOS)
|Long Term Debt/Equity Ratio||0.08|
|Operating Profit Margin||23.51%|
The Mosaic Company produces and markets concentrated phosphate and potash crop nutrients for the agriculture industry worldwide. The company also offers phosphate-based animal feed ingredients; and produces and sells potash for use as fertilizers and animal feed ingredients, as well as for use in industrial applications. Its potash products are also used for de-icing and as a water softener regenerant.
3) Precision Castparts Corp. (NYSE:PCP)
|Long Term Debt/Equity Ratio||0.03|
|Operating Profit Margin||25.41%|
Precision Castparts Corp. manufactures and sells metal components and products worldwide. Its Investment Cast Products segment offers aerospace structural and airfoil castings for the turbine section of jet aircraft engines; investment castings for industrial gas turbine engines; artificial hips and knees for medical prostheses applications; landing gear struts and engine inlets for unmanned aerial vehicles; impellers for pumps and compressors; titanium components for armaments; and alloys for other investment casting companies.
The company's Forged Products segment provides forged components, including fan discs, compressor discs, turbine discs, seals, spacers, shafts, hubs, and cases for jet engines; airframe structural components, such as landing gear beams, bulkheads, wing structures, engine mounts, struts, tail flaps, and housings for commercial and military aircraft; mechanical and structural tubular forged products for energy markets; casing and tubulars for the oil and gas industry; forged components for propulsion systems; and forgings for pumps, valves, and structural applications.
4) Public Storage (NYSE:PSA)
|Industry||REIT - Diversified|
|Long Term Debt/Equity Ratio||0.10|
|Operating Profit Margin||45.48%|
Public Storage operates as a real estate investment trust (REIT). It engages in the acquisition, development, ownership, and operation of self-storage facilities in the United States and Europe. The company's self-storage facilities offer storage spaces for lease on a month-to-month basis for personal and business use.
5) Michael Kors Holdings Ltd. (NYSE:KORS)
|Long Term Debt/Equity Ratio||0.00|
|Operating Profit Margin||21.35%|
Michael Kors Holdings Limited engages in the design, marketing, distribution, and retail of branded women's apparel and accessories, and men's apparel. The company sells its products primarily under the names of Michael Kors, MICHAEL KORS, MICHAEL MICHAEL KORS, and KORS MICHAEL KORS. It operates in three segments: Retail, Wholesale, and Licensing. The Retail segment engages in the sale of women's apparel; accessories, which include handbags and small leather goods, such as wallets; women's footwear; and licensed products comprising watches, fragrances, and eyewear.
6) NTT DoCoMo, Inc. (NYSE:DCM)
|Industry||Telecom Services - Foreign|
|Long Term Debt/Equity Ratio||0.04|
|Operating Profit Margin||20.38%|
NTT DoCoMo, Inc. provides wireless telecommunications services, packet communications services, and satellite mobile communications services in Japan. It offers wireless voice and data communication services, such as second generation (2G) and third generation (3G) cellular services, and mobile multimedia services. The company provides mova services, on the 2G network, compatible with voice and data communication; FOMA services, on its 3G network, with voice and high-speed data communication, which are compatible with various services, such as videophone and video content downloading; and i-mode services, which are wireless Internet access services.
7) Novo Nordisk A/S (NYSE:NVO)
|Industry||Drug Manufacturers - Other|
|Long Term Debt/Equity Ratio||0.02|
|Operating Profit Margin||35.80%|
Novo Nordisk A/S, a healthcare company, engages in the discovery, development, manufacture, and marketing of pharmaceutical products in Denmark and internationally. The company operates in two segments, Diabetes Care and Biopharmaceuticals. The Diabetes care segment covers insulins, obesity, oral antidiabetic drugs, and other protein-related products and projects comprising glucagon and protein-related delivery systems, as well as GLP-1 analogue.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on August 19, 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.