Without question, unmanageable debt can place a company in a compromising position. Decisions are made from a defensive, rather than an offensive perspective, and this environment tends to dampen growth. Even when a debt laden company has strong earnings, an economic slowdown can have a lasting negative impact. For our list today, we searched for large cap companies that look well positioned to avoid those circumstances. The large cap stocks that surfaced have kept their debt ratios low and have demonstrated strong profitability in the past year. We think you will be inspired to do additional research on what we found.
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 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 Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
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 large cap stocks. From here, we then looked for companies that have shown strong bottom line growth over the last year (1-year fiscal EPS growth rate>10%)(Net Margin [TTM]>10%). We then looked for companies that operate with little to no long term debt (Long Term D/E Ratio<.1). Next, we then screened for businesses that have maintained a sound capital structure (D/E Ratio<.1). We did not screen out any sectors.
Do you think these large-cap stocks failed to price their value accurately? Use our screened list as a starting point for your own analysis.
1) Activision Blizzard, Inc. (ATVI)
|Industry||Multimedia & Graphics Software|
|Earnings Per Share Growth Rate||176.08%|
|Long Term Debt/Equity Ratio||0.00|
Activision Blizzard, Inc. publishes online, personal computer, console, handheld, and mobile interactive entertainment worldwide. It develops and publishes PC-based computer games and maintains its proprietary online-game related service, Battle.net. The company also develops, markets, and sells role-playing action and strategy PC-based computer games, as well as online subscription-based games in the massively multiplayer online role-playing game category. Activision Blizzard, Inc. is headquartered in Santa Monica, California. Activision Blizzard, Inc. is a subsidiary of Vivendi S.A.
2) CME Group Inc. (CME)
|Industry||Investment Brokerage - National|
|Earnings Per Share Growth Rate||89.73%|
|Long Term Debt/Equity Ratio||0.10|
CME Group Inc. operates the CME, CBOT, NYMEX and COMEX futures exchanges worldwide. The company provides a range of products across various asset classes, such as interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather, and real estate. The company was formerly known as Chicago Mercantile Exchange Holdings Inc. and changed its name to CME Group Inc. in July 2007. CME Group Inc. was founded in 1898 and is headquartered in Chicago, Illinois.
3) Silver Wheaton Corp. (SLW)
|Earnings Per Share Growth Rate||249.13%|
|Long Term Debt/Equity Ratio||0.01|
Silver Wheaton Corp., a mining company, together with its subsidiaries, operates as a silver streaming company worldwide. The company has 14 long-term silver purchase agreements and two long-term precious metal purchase agreements whereby it acquires silver and gold production from the counterparties located in Mexico, the United States, Greece, Sweden, Peru, Chile, Argentina, and Portugal. Silver Wheaton Corp. is headquartered in Vancouver, Canada.
4) Eldorado Gold Corp. (EGO)
|Earnings Per Share Growth Rate||42.68%|
|Long Term Debt/Equity Ratio||0.01|
Eldorado Gold Corporation, together with its subsidiaries, engages in the exploration, development, mining, and production of gold properties in Brazil, China, Greece, and Turkey. It operates the Kişladağ and Efemukuru gold mines in Turkey; the Jinfeng, Tanjianshan, and White Mountain gold mines in China; and the Vila Nova iron ore mine in Brazil. As of December 31, 2011, Eldorado Gold Corporation had approximately 19 million ounces of proven and probable gold reserves. The company was formerly known as Eldorado Corporation Ltd. and changed its name to Eldorado Gold Corporation in April 1996. Eldorado Gold Corporation was founded in 1992 and is headquartered in Vancouver, Canada.
5) VMware, Inc. (VMW)
|Industry||Technical & System Software|
|Earnings Per Share Growth Rate||98.64%|
|Long Term Debt/Equity Ratio||0.08|
VMware, Inc. provides virtualization and virtualization-based cloud infrastructure solutions in the United States and internationally. The company's products address planned and unplanned downtime management, system recoverability and reliability, backup and recovery, resource provisioning and management, capacity and performance management, and security issues. VMware, Inc. was incorporated in 1998 and is headquartered in Palo Alto, California. VMware, Inc. operates as a subsidiary of EMC Corporation.
6) Michael Kors Holdings Ltd. (KORS)
|Earnings Per Share Growth Rate||161.65%|
|Long Term Debt/Equity Ratio||0.00|
Michael Kors Holdings Limited engages in the design, marketing, distribution, and retail of branded women's apparel and accessories, and men's apparel. The company sells its products primarily under the names of Michael Kors, MICHAEL KORS, MICHAEL MICHAEL KORS, and KORS MICHAEL KORS. It operates in three segments: Retail, Wholesale, and Licensing. The company was founded in 1981 and is based in Tsim Sha Tsui, Hong Kong.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/28/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.