In the capital-intensive sector of basic materials, it's easy for companies to amass debt in pursuit of growth. But the companies who grow in value over time are those that can continually turn a profit, while keeping down debt. With these ideas in mind, we searched today for basic material stocks with these two key attributes: profitability and low debt. The combination of these traits point to a company with strong financial controls and oversight, which we consider necessary traits for a smart investment. We came up with short but intriguing list of basic materials stocks for you to consider.
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 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.
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
We first looked for basic materials stocks. We next screened for businesses that operate with little to no debt (D/E Ratio<.1). We then looked for companies with strong profit margins (1-year operating margin>15%)(Net Margin [TTM]>10%). We did not screen out any market caps.
Do you think these stocks have a positive future in store? Use this list as a starting-off point for your own analysis.
1) Great Panther Silver Ltd (NYSEMKT:GPL)
|Operating Profit Margin||24.49%|
Great Panther Silver Limited engages in the business of acquisition, exploration, development, and operation of mineral properties and mines in Mexico. The company owns a 100% interest in the Topia Mine consisting of 4 groups of mining concessions covering a total area of 6,399 hectares located in the northwest Durango State; and a 100% interest in the Guanajuato silver-gold mine complex comprising 28 non-contiguous concessions totaling 1,107.28 hectares situated in Guanajuato. It also owns interest in the San Ignacio, a development stage property and Santa Rosa, an exploration stage property. The company was formerly known as Great Panther Resources Limited and changed its name to Great Panther Silver Limited in January 2010. Great Panther Silver Limited was founded in 1965 and is based in Vancouver, Canada.
2) NuStar GP Holdings, LLC (NYSE:NSH)
|Industry||Oil & Gas Pipelines|
|Operating Profit Margin||68.12%|
NuStar GP Holdings, LLC owns general partner and limited partner interests in NuStar Energy L.P. that engages in the terminalling and storage of petroleum products, transportation of petroleum products and anhydrous ammonia, and petroleum refining and marketing. It holds a 2% general partner interest, 14.3% limited partner interest, and 100% of the incentive distribution rights in NuStar Energy L.P. The company, through NuStar Energy L.P., has terminal facilities in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, the United Kingdom, and Turkey. The company was founded in 2000 and is headquartered in San Antonio, Texas.
3) Natural Gas Services Group Inc. (NYSE:NGS)
|Industry||Oil & Gas Equipment & Services|
|Operating Profit Margin||21.51%|
Natural Gas Services Group, Inc. provides small to medium horsepower compression equipment to the natural gas industry in the United States. It focuses primarily on the non-conventional natural gas production business, such as coal bed methane, gas shale, and tight gas. The company engages in the compressor fabrication that assembles compressor components into compressor units for sale or rent; and engineers and fabricates natural gas compressors for sale to customers to meet their specifications based on well pressure, production characteristics, and compression applications. It also designs and manufactures reciprocating compressor frames, cylinders, and parts; designs, fabricates, sells, installs, and services flare stacks, and related ignition and control devices for the onshore and offshore incineration of gas compounds, such as hydrogen sulfide, carbon dioxide, natural gas, and liquefied petroleum gases; provides an exchange and rebuild program for screw compressors and maintains an inventory of new and used compressors; and services and maintains compressors. The company rents small to medium horsepower compression equipment to customers under contracts. As of December 31, 2011, it had 2,120 natural gas compressors in its rental fleet totaling approximately 287,764 horsepower; and 1,575 natural gas compressors totaling approximately 220,213 horsepower rented to customers. Natural Gas Services Group, Inc. was founded in 1998 and is based in Midland, Texas.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/03/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business Relationship Disclaimer: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.