If you are an investor that thrives on growth opportunities, it is likely you have a portfolio that includes small cap stocks. At this level we find stocks that are often ripe with potential, but not without some added risk. To cut that risk, analyzing liquidity can be a helpful indicator of a company that is well positioned for growth. Ample cash on hand allows a company to be more nimble and able to make strategic moves to further growth. We ran a scan to find small cap stocks with substantial cash reserves. Our list was further reduced to include stocks that have a recent' Strong Buy' rating from industry analysts. We developed a short, but diverse list of stocks for your review.
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 small cap stocks. We then screened for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). Next, we then screened for businesses that analysts rate as "Strong Buy" (mean recommendation < 2). We did not screen out any sectors.
Do you think these small-cap stocks should be trading higher? Use this list as a starting-off point for your own analysis.
1) Pacira Pharmaceuticals Inc. (PCRX)
|Industry||Drug Manufacturers - Major|
Pacira Pharmaceuticals, Inc., a specialty pharmaceutical company, engages in the development, commercialization, and manufacture of pharmaceutical products for use in hospitals and ambulatory surgery centers. The company develops pharmaceutical products based on its proprietary DepoFoam drug delivery technology. Its product portfolio includes EXPAREL, a long-acting non-opioid postsurgical analgesic for postsurgical pain management; DepoCyt for the treatment of lymphomatous meningitis, a cancer of the immune system; DepoDur for controlling post operative pain; DepoNSAID, which is in preclinical trials for the relief of acute pain; and DepoMethotrexate that is in preclinical trials for the treatment of rheumatoid arthritis oncology.
2) Cabot Microelectronics Corp. (CCMP)
|Industry||Semiconductor - Integrated Circuits|
Cabot Microelectronics Corporation engages in the development, manufacture, and sale of chemical mechanical planarization (CMP) consumables to the semiconductor industry primarily in the United States, Asia, and Europe. CMP is a polishing process used by integrated circuit (IC) device manufacturers to planarize or flatten the multiple layers of material that are deposited upon silicon wafers in the production of advanced ICs. The company offers CMP slurries, which are liquid solutions composed of high-purity deionized water, proprietary chemical additives, and engineered abrasives that chemically and mechanically interact with the surface material of the IC device at an atomic level; and CMP polishing pads that are engineered polymeric materials designed to distribute and transport the slurry to the surface of the wafer and distribute it evenly across the wafer. Its CMP slurries are used for various polishing applications, including materials that conduct electrical signals, such as tungsten, copper, tantalum, and aluminum; the dielectric insulating materials that separate conductive layers within logic and memory IC devices; and the disk substrates and magnetic heads used in hard disk drives.
3) Heritage-Crystal Clean, Inc (HCCI)
|Industry||Pollution & Treatment Controls|
Heritage-Crystal Clean, Inc. provides industrial and hazardous waste services to small and mid-sized customers in the United States. Its services comprise parts cleaning, containerized waste management, used oil collection and re-refining, and vacuum truck services.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/21/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.