To determine if a company is well positioned in both the current market as well as for future growth, analyzing profitability and liquidity can provide an insightful view. When both characteristics are strong, it points to companies with fiscal controls and oversight, as well as operational efficiency. Cash reserves are essential for companies that want to maintain for the duration, as these funds can serve as a buffer in times of uncertainty or aid in growth enhancing tactics like strategic acquisitions. For our list today, we scanned the industrial sector to find companies that are generating profits and building reserves. We think you will find these stocks worthy of further research.
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
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 their competitors.
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 Uuick 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. Next, we then screened for businesses that have strong bottom line profitability (Net Margin [TTM]>10%)(1-year operating margin>15%). Next, we then screened for businesses that have a substantial 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 break through to new highs? Use our list along with your own analysis.
1) United States Lime & Minerals, Inc. (USLM)
|Industry||General Building Materials|
|Operating Profit Margin||20.61%|
United States Lime & Minerals, Inc., together with its subsidiaries, engages in the manufacture and sale of lime and limestone products in the United States. It operates in two segments, Lime and Limestone Operations, and Natural Gas Interests. The Lime and Limestone Operations segment extracts limestone from open-pit quarries and an underground mine, and processes it as pulverized limestone, quicklime, hydrated lime, and lime slurry. It supplies its products primarily for the construction, steel, municipal sanitation and water treatment, oil and gas services, aluminum, paper, glass, roof shingle, and agriculture industries, as well as for utilities and other industries requiring scrubbing of emissions for environmental purposes. The Natural Gas Interests segment holds various royalty interests and non-operating working interests with respect to oil and gas rights on approximately 3,800 acres of land located in Johnson County, Texas in the Barnett Shale Formation. The company was founded in 1948 and is headquartered in Dallas, Texas. United States Lime & Minerals, Inc. is a subsidiary of Inberdon Enterprises Ltd.
2) FLIR Systems, Inc. (FLIR)
|Industry||Aerospace/Defense Products & Services|
|Operating Profit Margin||22.15%|
FLIR Systems, Inc. designs, manufactures, and markets thermal imaging systems worldwide. The company operates through two divisions, Commercial Systems and Government Systems. The Commercial Systems division designs, manufactures, and markets instrument, sensor, and electronics solutions that facilitate improved situational awareness and environmental analytics for commercial customers. This division also offers thermal vision and measurement products, including thermal imaging systems, automotive night vision systems, and personal vision thermal cameras, which enable its customer to see at night or in adverse conditions; and electronics for the maritime market, as well as integrated stem to stern networked electronic systems for various boats.
The Government Systems division designs, manufactures, and markets advanced imaging and detection systems for government markets. This division also provides surveillance, detection, and integrated systems that comprise imaging and recognition solutions to military, law enforcement, public safety, and other government customers for the protection of borders, troops, and public welfare; sensor instruments, which detect and identify chemical, biological, radiological, nuclear, and explosives threats for military force protection, homeland security, and commercial applications; and integrated systems that develop platform solutions for combating security threats and incorporate multiple sensor systems to deliver actionable intelligence for wide area surveillance, intrusion detection, and facility security. The company serves various customers, including government agencies and militaries, aerospace and defense contractors, electricians and tradesmen, commercial ports, critical infrastructure operators, electrical generation and gas processing plants, heating and air conditioning technicians, and recreational boaters, as well as consumer markets. FLIR Systems, Inc. was founded in 1978 and is headquartered in Wilsonville, Oregon.
3) Sturm, Ruger & Co. Inc. (RGR)
|Industry||Aerospace/Defense Products & Services|
|Operating Profit Margin||21.10%|
Sturm, Ruger & Company, Inc. engages in the design, manufacture, and sale of firearms in the United States. It offers single-shot, autoloading, bolt-action, and sporting rifles; shotguns; rim fire autoloading and center fire autoloading pistols; and single-action and double-action revolvers. The company also manufactures and sells accessories and replacement parts for its firearms. In addition, it provides investment castings made from steel alloys directly or through manufacturers' representatives. The company sells its firearm products through independent wholesale distributors to the commercial sporting market under the Ruger name; and exports its firearms through a network of commercial distributors and directly to law enforcement agencies and foreign governments. Sturm, Ruger & Company, Inc. was founded in 1948 and is based in Southport, Connecticut.
4) Proto Labs, Inc. (PRLB)
|Industry||Machine Tools & Accessories|
|Operating Profit Margin||25.13%|
Proto Labs, Inc. produces CNC machined and injection molded plastic parts. It offers products that are made of various engineering-grade resins, such as ABS, polycarbonate, nylon, acetal, polypropylene, acrylic, PBT, HDPE, LDPE, TPE, and TPU, as well as LCP, including glass or fiber filled grades. The company was founded in 1999 and is headquartered in Maple Plain, Minnesota. It has locations in the United States, the United Kingdom, Germany, Japan, Italy, France, and Spain.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/12/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.