When a stock price has dropped it can raise questions about the well being of a company and its long-term sustainability. On the other hand, it might only be a temporary aberration that will soon iron itself out and the stock price will start to move upward. To find out more, it can be helpful to analyze liquidity. When a company has a large cash reserve, it can bring a certain amount of reassurance. That money can fuel future growth, or be used to supplement cash flow when needed. Today, we have a short list of industrial stocks that are highly liquid and appear to be trading at a discount. If stocks with these traits appeal to you, then you will enjoy our list below.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it lets an investor know how much the investment community is willing to pay for every dollar's worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollar's worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community - not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share [EPS], and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is "better" (cheaper) and a higher ratio is "worse" (expensive) - a PEG ratio of 1 means the company is fairly priced.
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 industrial stocks. We then screened for businesses that are trading at a discount (P/S<1)(PEG Ratio < 1). We then screened for businesses with a large amount of cash on hand (Current Ratio>2) (Quick Ratio>2). We did not screen out any market caps.
Do you think these stocks will trade at a higher valuation? Use this list as a starting-off point for your own analysis.
1) Belden, Inc. (NYSE:BDC)
|Industry||Industrial Electrical Equipment|
|Price/Earnings to Growth Ratio||0.97|
Belden Inc. engages in the design, manufacture and marketing of cable, connectivity, and networking products for the industrial, enterprise, broadcast and consumer electronics markets. Its products provide the transmission of signals for data, sound and video applications. The company's cable products include copper cables, such as shielded and unshielded twisted pair cables, coaxial cables, and stranded cables; fiber optic cables, which transmit light signals through glass or plastic fibers; and composite cables that are combinations of multi conductor, coaxial, and fiber optic cables jacketed together or otherwise joined together to serve complex applications and provide ease of installation.
Its connectivity products comprise fiber and copper connectors for the enterprise, broadcast, and industrial markets, as well as end-to-end structured cabling solutions; and networking products include industrial Ethernet switches and related equipment, fiber optic interfaces, and media converters used to bridge fieldbus networks over long distances, as well as load-moment indicators for mobile cranes and other load-bearing equipment. The company also designs, manufactures and markets various industrial connectors for sensors and actuators, cord-sets, distribution boxes, and fieldbus communications, which are used as components of manufacturing equipment and in the installation and networking of such equipment.
Belden Inc. sells its products through distributors, as well as directly to systems integrators, original equipment manufacturers, end-users, and installers. It primarily operates in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company was founded in 1902 and its headquarters is in St. Louis, Missouri.
2) Alamo Group, Inc. (NYSE:ALG)
|Industry||Farm & Construction Machinery|
|Price/Earnings to Growth Ratio||0.94|
Alamo Group Inc., together with its subsidiaries, engages in designing, manufacturing, distributing, and servicing agricultural and infrastructure maintenance equipment for governmental and industrial use primarily in the United States, England, France, Canada and Australia. It offers industrial equipment, such as boom-mounted mowers, and other types of cutters and replacement parts for heavy-duty, intensive use applications, including maintenance around highway, airport, recreational and other public areas; heavy-duty, tractor-and truck-mounted mowing and vegetation maintenance equipment, and replacement parts; air, mechanical broom, and regenerative air sweepers, as well as pothole patchers and replacement parts; and products for excavation, grading, shaping and similar tasks involved in land clearing, road building or maintenance.
The company also offers catch basin cleaners and roadway debris vacuum systems; parking lot sweepers; and snow plows and heavy-duty snow removal equipment, hitches, and attachments for trucks, loaders and graders. In addition, it produces a line of tractor-powered equipment, such as rotary cutters, finishing mowers, flail mowers, disc mowers, ZTR ride-on mowers, front-end loaders, backhoes, rotary tillers, posthole diggers, and scraper blades; cutting parts, plain and hard-faced replacement tillage tools, disc blades, and fertilizer application components; heavy-duty mechanical rotary mowers, snow blowers, and rock removal equipment; hydraulic, boom-mounted hedge, hedgerow, and grass cutters, as well as other tractor attachments and implements; industrial grass mowers, and agricultural seedbed preparation cultivators; light-duty power arm mowers, agricultural implements; hydraulic and mechanical boom mowers; and vacuum trucks, high pressure cleaning systems, and trenchers, as well as related replacement parts. The company was founded in 1955 and is based in Seguin, Texas.
3) Coleman Cable, Inc. (NASDAQ:CCIX)
|Industry||Industrial Electrical Equipment|
|Price/Earnings to Growth Ratio||0.87|
Coleman Cable, Inc. designs, develops, manufactures and supplies electrical wire and cable products for consumer, commercial and industrial applications primarily in the United States and Canada. It provides industrial wire and cable products, including portable cords, machine tool wiring, building wires, welding, mining, pump, control, stage/lighting, diesel/locomotive, instrumentation, tray, thermocouple, high temperature, and metal clad cables, as well as other power cord products under the Royal, Seoprene, Copperfield, Continental, Triangle and Corra/Clad brand names. The company also offers assembled wire and cable products comprising various types of extension cords, ground fault circuit interrupters, portable lighting, retractable reels, holiday items, solar lighting, recreational vehicle cords and adapters, and surge and strip products, as well as booster cables, battery cables, and battery accessories for the automotive aftermarket.
It provides assembled wire and cable products under the brand names of Woods, Moonrays, Polar Solar, Yellow Jacket, American Contractor, Road Power, Power Station, Booster-in-a-Bag, TRC, Shock Shield, Electra Shield, Fire Shield, and Designers Edge, as well as privately labeled brands. In addition, the company offers electronic wire products, such as telephone, data, security, coaxial, industrial automation, instrumentation, twinaxial, fire alarm, plenum and home automation cables that connect devices under the Signal, Plencote, Soundsational and Clear Signal brand names. Further, it provides fabricated bare wire products consisting of stranded, bunched, and single-end copper, copper-clad steel, and various copper alloy wires under the brand name of Copperfield. The company sells its products to specialty distributors, retailers, and original equipment manufacturers. Coleman Cable, Inc. was founded in 1970 and is based in Waukegan, Illinois.
Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/04/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: 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.