Understanding that many people view finance as a riskier category, today we searched for companies that have been reliable earners while not leveraging assets to stay afloat. To find stocks of this nature, we reviewed financial companies that have produced strong earnings growth in the past year. But profit is not the only attribute these companies have in their favor. We further reduced the list to include those who have minimal debt. This is often a sign that a company has been able to maintain a solid infrastructure. We think you will like the financial stocks that we have summarized below.
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.
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.
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.
We first looked for financial stocks. Then we screened for businesses that have posted strong earnings growth for shareholders over an extended period of time (one-year fiscal EPS growth rate>10%)(ROA > 10%). Next, we screened for businesses that operate with little to no debt (D/E Ratio<.1). We did not screen out any market caps.
Do you think these stocks hold solid value? Please use our list to assist with your own analysis.
1) Texas Pacific Land Trust (TPL)
|Industry||Real Estate Development|
|Earnings Per Share Growth Rate||88.80%|
|Return on Assets||92.82%|
Texas Pacific Land Trust engages in the sale, lease, and management of land in Texas, the United States. It retains oil and gas royalties, and involves in temporary cash investments. The company leases land to the ranching industry for grazing purposes. As of February 29, 2012, the company owned the surface estate in 926,535 acres of land comprised of various separate tracts located in 19 counties in the western part of Texas. It also owns a 1/128 nonparticipating perpetual oil and gas royalty interest under 85,414 acres of land; and a 1/16 nonparticipating perpetual oil and gas royalty interest under 373,777 acres of land in the western part of Texas. Texas Pacific Land Trust was founded in 1888 and is based in Dallas, Texas.
2) Dorchester Minerals LP (DMLP)
|Earnings Per Share Growth Rate||20.33%|
|Return on Assets||29.69%|
Dorchester Minerals, L.P. engages in the acquisition, ownership, and administration of producing and nonproducing natural gas and crude oil royalty, net profits, and leasehold interests in 574 counties and 25 states. Its royalty properties consist of producing and nonproducing mineral, royalty, overriding royalty, net profits, and leasehold interests; and net profits interests represent net profits overriding royalty interests in various properties owned by the operating partnership. Dorchester Minerals Management LP serves as the general partner of Dorchester Minerals, L.P. The company was founded in 1982 and is based in Dallas, Texas.
3) Westwood Holdings Group Inc. (WHG)
|Earnings Per Share Growth Rate||29.34%|
|Return on Assets||16.04%|
Westwood Holdings Group, Inc. manages investment assets and provides services for its clients. The company operates through two subsidiaries, Westwood Management Corp. and Westwood Trust. The Westwood Management Corp. provides investment advisory services to corporate retirement plans, public retirement plans, endowments and foundations, mutual funds, individuals, and clients of Westwood Trust. The Westwood Trust offers trust and custodial services to institutions and high net worth individuals; and participates in common trust funds that it sponsors. Westwood Holdings Group, Inc. was founded in 1983 and is based in Dallas, Texas.
4) CBOE Holdings, Inc. (CBOE)
|Earnings Per Share Growth Rate||48.04%|
|Return on Assets||43.74%|
CBOE Holdings, Inc., through its subsidiaries, operates markets for the trading of listed options contracts. The company provides marketplaces for trading the stocks of individual corporations; various market indexes; and other exchange-traded products, such as exchange-traded funds and exchange-traded notes. It also offers futures and options on futures products through a futures market. The company has strategic relationships with Standard & Poor's Financial Services LLC; CME Group Index Services LLC; Nasdaq; and Frank Russell Co. CBOE Holdings, Inc. was founded in 1973 and is based in Chicago, Illinois.
5) Capital Southwest Corporation (CSWC)
|Earnings Per Share Growth Rate||70.54%|
|Return on Assets||16.57%|
Capital Southwest Corporation is a public investment firm specializing in venture capital and private equity investments in small and medium sized businesses. It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds, and companies in which significant senior management is departing. The firm provides equity financing for expansion, growth capital, acquisition financings, management buyouts, and recapitalizations.
It also provides capital to early stage companies. The firm invests in diverse industries across the United States with a focus on the Southwest, Southeast, Midwest and Mountain Regions. It seeks to invest between $5 million and $15 million and can co-invest up to $40 million. The firm prefers to invest in companies with revenues and enterprise values between $5 million and $100 million and an EBITDA between -$1 million and $10 million. It prefers to take long term position of 20 years in its portfolio companies and also acquires minority ownership stakes between 20 percent and 45 percent. The firm also provides follow-on financing. Capital Southwest Corporation was founded in 1961 and is based in Dallas, Texas.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on September 01, 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.