Anyone who has played baseball knows that there is a sweet spot on the bat. When we connect the ball to the bat at just the right place with enough force, we get amazing trajectory. Companies with strong and steadily increasing earnings are in their own sweet spot. For our list today we focused on mid cap stocks with strong profits. In addition, these companies understand the importance of minimizing debt to keep them well positioned for expansion. Check out the list below of mid cap stocks that have improved their profitability over the past year while keeping debt to an absolute minimum. We think you will find our short list rather interesting.
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.
Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
We first looked for mid cap stocks. We then screened for businesses that operate with little to no debt (D/E Ratio<.1). From here, we then looked for companies with strong profit margins (1-year operating margin>15%)(ROE [TTM]>30%). We did not screen out any sectors.
Do you think these mid-cap stocks will break through to new highs? Use our list along with your own analysis.
1) Terra Nitrogen Company, L.P. (TNH)
|Operating Profit Margin||67.41%|
|Return on Equity||128.03%|
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.
2) CBOE Holdings, Inc. (CBOE)
|Operating Profit Margin||48.50%|
|Return on Equity||61.06%|
CBOE Holdings, Inc., through its subsidiaries, operates markets for the trading of listed options contracts. The company provides marketplaces for trading the stocks of individual corporations; various market indexes; and other exchange-traded products, such as exchange-traded funds and exchange-traded notes. It also offers futures and options on futures products through a futures market. The company has strategic relationships with Standard & Poor's Financial Services LLC; CME Group Index Services LLC; NASDAQ; and Frank Russell Co. CBOE Holdings, Inc. was founded in 1973 and is based in Chicago, Illinois.
3) FactSet Research Systems Inc. (FDS)
|Industry||Information & Delivery Services|
|Operating Profit Margin||33.88%|
|Return on Equity||35.38%|
FactSet Research Systems Inc. provides financial and economic information to investment community worldwide. The company offers fundamental financial data on various companies, analytical applications, and client services to the portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers, and fixed income professionals. FactSet was founded in 1978 and is headquartered in Norwalk, Connecticut.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 10/18/2012.