Liquidity and profitability are two attributes that add up to a company with money. After all, liquidity provides a company with the means to make strategic moves like acquisitions or open new markets. Profitability typically signifies that effective management is at the helm and that there is substantial demand for the offered goods and services. Today, we scanned for stocks in the basic materials sector that have ample cash reserves while generating strong profits. Take a look at the list below to see if our findings inspire you to do more 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 the company is to meet current obligations using liquid assets).
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
We first looked for basic materials stocks. We then looked for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then looked for companies that have strong profitability relative to their asset base (ROA [TTM]>10%)(1-year fiscal EPS growth rate>10%). We did not screen out any market caps.
Do you think these stocks are undervalued? Please use our list to assist with your own analysis.
1) CF Industries Holdings, Inc. (CF)
|Return on Assets||20.99%|
|Earnings Per Share Growth Rate||311.81%|
CF Industries Holdings, Inc., through its subsidiary, CF Industries, Inc., manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. It operates in two segments, Nitrogen and Phosphate. The Nitrogen segment principally offers ammonia, granular urea, urea ammonium nitrate solution, urea liquor, diesel exhaust fluid, and aqua ammonia. The Phosphate segment primarily offers diammonium phosphate and monoammonium phosphate. The company also owns 50% interests in the GrowHow UK Limited, a nitrogen products producer in the United Kingdom; Point Lisas Nitrogen Limited, an ammonia producer; and KEYTRADE AG, a global fertilizer trading company. CF Industries Holdings' customers include cooperatives and independent fertilizer distributors primarily in the midwestern United States. The company was founded in 1946 and is headquartered in Deerfield, Illinois.
2) Lihua International, Inc. (LIWA)
|Return on Assets||21.84%|
|Earnings Per Share Growth Rate||31.68%|
Lihua International, Inc., through its subsidiaries, produces copper replacement products in the People's Republic of China. It develops, designs, manufactures, markets, and distributes refined copper products, including copper anode, copper rod, pure superfine copper wire, and copper-clad aluminum superfine wire. The company offers its products in various diameters ranging from 0.03 mm to 0.18 mm. Its copper rod based wire products comprise cable products used for telephone drop wire and conductors; electric utilities; transmission lines, grid wire, fence, and structured grounds; industrial drop wire, magnet wire, battery cables, and automotive wiring harnesses; and radio frequency shielding, as well as magnet wire products used in electronic motors, transformers, water pumps, automobile meters, energy, industrial, commercial, and residential industries. It produces and distributes copper superfine wire in various forms, including fine wire to smaller wire manufacturers for further processing; magnet wire that is used for electrical conductivity in a range of motorized appliances; and tin plated wire for the transmission of audio and visual signals. Lihua International manufactures and sells copper anode to copper entities, which produce and sell copper cathode to copper products manufacturers. The company sells its products directly to manufacturers or through distributors in the wire and cable industries, as well as to manufacturers in the consumer electronics, white goods, automotive, utility, telecommunications, and specialty cable industries. The company is headquartered in Danyang, the People's Republic of China.
3) Longwei Petroleum Investment Holding Limited (LPH)
|Industry||Oil & Gas Refining & Marketing|
|Return on Assets||24.39%|
|Earnings Per Share Growth Rate||42.52%|
Longwei Petroleum Investment Holding Limited, an energy company, engages in the wholesale distribution of finished petroleum products in the People's Republic of China. The company is involved in the transportation, storage, and sale of finished petroleum products, including diesel, gasoline, fuel oil, and solvents from various petroleum refineries. It also acts as a purchasing agent for other intermediaries; and operates two retail gas stations, which sells diesel and gasoline. The company markets its products to commercial, industrial, retail, and wholesale customers, including coal mining operators, power suppliers, large-scale gas stations, and small and independent gas stations. Longwei Petroleum Investment Holding Limited was founded in 1995 and is headquartered in Taiyuan City, the People's Republic of China.
4) Innophos Holdings Inc (IPHS)
|Return on Assets||12.44%|
|Earnings Per Share Growth Rate||89.81%|
Innophos Holdings, Inc., through its subsidiaries, engages in the production of mineral based specialty ingredients that are used in food, beverage, pharmaceutical, oral care, and industrial end markets. The company's specialty ingredients include specialty phosphate salts, specialty phosphoric acids, and a range of other mineral based specialty ingredients that are used as flavor enhancers in beverages; electrolytes in sports drinks; texture modifiers in cheeses; leavening agents in baked goods; mineral sources for nutritional supplements; pharmaceutical excipients; and abrasives in toothpaste, as well as in industrial applications, such as asphalt modification and petrochemical catalysis. It also provides food and technical grade purified phosphoric acid (PPA) used in the production of fertilizer, and specialty phosphate salts and acids, as well as in beverage and water treatment applications; technical grade sodium tri polyphosphate (STPP), a specialty phosphate, which is used as an ingredient in cleaning products, such as industrial and institutional cleaners, automatic dishwashing detergents, and consumer laundry detergents, as well as in water treatment, clay processing, and copper ore processing activities; and detergent grade PPA that is primarily used in the production of STPP. In addition, the company offers granular triple super phosphate, a fertilizer product line used for increasing crop yields in various agricultural sectors. It serves primarily consumer goods manufacturers, distributors, and specialty chemical manufacturers in the United States, Mexico, Canada, and internationally. Innophos Holdings, Inc. was incorporated in 2004 and is headquartered in Cranbury, New Jersey.
5) Almaden Minerals Ltd. (AAU)
|Industry||Industrial Metals & Minerals|
|Return on Assets||16.46%|
|Earnings Per Share Growth Rate||288.18%|
Almaden Minerals Ltd., an exploration stage company, engages in the acquisition, exploration, and development of mineral properties in Canada, the United States, and Mexico. The company primarily explores for gold, silver, and copper deposits. Its principal properties include the Elk gold and silver property located in southern British Columbia, Canada; diamond property in the Northwest Territories, Canada; Willow project, a copper-gold porphyry project in Nevada, the United States; El Cobre property, a copper-gold porphyry target on the east coast of Mexico; San Carlos project, a copper-gold project situated in the state of Tamaulipas, Mexico; and Cadera project, a gold project located in Puebla State, Mexico. The company was founded in 1980 and is headquartered in Vancouver, Canada.
6) Balchem Corp. (BCPC)
|Industry||Chemicals - Major Diversified|
|Return on Assets||14.58%|
|Earnings Per Share Growth Rate||14.09%|
Balchem Corporation develops, manufactures, and sells specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical, and medical sterilization industries in the United States and internationally. It operates in three segments: Specialty Products; Food, Pharma & Nutrition; and Animal Nutrition & Health. The Specialty Products segment offers ethylene oxide primarily for use in the health care industry; and single use canisters with ethylene oxide for use in medical device sterilization. It also sells propylene oxide as a fumigant to aid in the control of insects and microbiological spoilage; to reduce bacterial and mold contamination; to customers seeking smaller quantities and whose requirements include utilization in various chemical synthesis applications; and to make paints durable, as well as for manufacturing specialty starches and textile coatings. The Food, Pharma & Nutrition segment provides microencapsulation solutions for applications in baked goods, refrigerated and frozen dough systems, processed meats, seasoning blends, confections, and nutritional supplements. It also markets human grade choline nutrient products for wellness applications. In addition, this segment offers a novel smooth dissolve excipient technology primarily used in chewable tablets or stick-pack dosage forms for nutritional and pharmaceutical products. The Animal Nutrition & Health segment offers REASHURE Choline, an encapsulated choline product; NITROSHURE, an encapsulated urea supplement; NIASHURE, a microencapsulated niacin product for dairy cows; and chelated mineral supplements. It also provides AMINOSHURE-L, rumen-protected lysine for use in dairy rations; basic choline chloride, a nutrient for animal health; and methylamines. The company sells its products through its sales force, independent distributors, and sales agents. Balchem Corporation was founded in 1967 and is headquartered in New Hampton, New York.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/24/2012.