Just because a company is profitable, it doesn't always mean it has a cash reserve, or even know how to reinvest those earnings into growth enhancing strategies. However, when a company is generating strong profits and has built up a substantial cash reserve, it appears that experienced and disciplined fiscal oversight is at the helm. For our scan of basic materials stocks today, we specifically looked for companies that have increased their earning trends significantly over the past year and are maintaining a high level of liquidity. Together, these traits add up to efficient and well funded companies. Take a look at the list of basic materials stocks below to see if our findings speak to you.
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.
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.
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 basic materials stocks. We then looked for businesses with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS growth rate>10%). 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 have more value to price in? Use our list along with your own analysis.
1) CVR Partners, LP (UAN)
|Operating Profit Margin||45.47%|
|Earnings Per Share Growth Rate||297.27%|
CVR Partners, LP engages in the production, distribution, and marketing of nitrogen fertilizers in North America. Its nitrogen fertilizer products include ammonia and urea ammonium nitrate. The company was founded in 2007 and is based in Sugar Land, Texas. CVR Partners, LP is a subsidiary of CVR Energy, Inc.
2) Nevsun Resources Ltd. (NSU)
|Operating Profit Margin||74.48%|
|Earnings Per Share Growth Rate||1128.70%|
Nevsun Resources Ltd., a gold and base metal developer, together with its subsidiaries, engages in the exploration, development, extraction, processing, and reclamation of mineral properties in Africa. It produces gold, copper, silver, and zinc concentrates. The company's principal mineral property includes Bisha Mine, a gold, copper, and zinc deposit, which is located in Eritrea, northeast Africa. It holds a mining and exploration license of 92 square kilometers in the Bisha Mine. The company was founded in 1965 and its headquarters is in Vancouver, Canada.
3) Terra Nitrogen Company, L.P. (TNH)
|Operating Profit Margin||67.41%|
|Earnings Per Share Growth Rate||91.36%|
Terra Nitrogen Company, L.P. engages in the production and sale of nitrogen fertilizer products. It primarily offers anhydrous ammonia and urea ammonium nitrate solutions. Terra Nitrogen GP Inc. serves as the general partner of the company. The company was founded in 1991 and is based in Deerfield, Illinois. Terra Nitrogen Company, L.P. operates as a subsidiary of Terra Industries Inc.
4) Randgold Resources Limited (GOLD)
|Operating Profit Margin||46.18%|
|Earnings Per Share Growth Rate||269.48%|
Randgold Resources Limited, together with its subsidiaries, engages in exploring, developing, and operating gold mines in west and east Africa. It also engages in diamond drilling activities. The company holds a 40% interest in Morila mine and an 80% interest in Loulo mine, as well as owns an 81% interest in Tongon project in northern Cote d'Ivoire. Randgold Resources Limited was founded in 1995 and is based in St Helier, Channel Islands.
5) Synergy Resources Corporation (SYRG)
|Industry||Oil & Gas Equipment & Services|
|Operating Profit Margin||45.89%|
|Earnings Per Share Growth Rate||49.53%|
Synergy Resources Corporation engages in the acquisition, exploitation, exploration, development, and production of oil and natural gas properties primarily located in the Wattenberg field in Denver-Julesburg Basin in northeast Colorado. As of August 31, 2011, its estimated net proved oil and gas reserves included 2,069.7 million barrels of oil and condensate, and 14.3 billion cubic feet of natural gas; and it operated 95 wells and had an ownership interest in 103 net wells. The company was founded in 2007 and is based in Platteville, Colorado.
Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/21/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.