On a personal finance level, most of us want more than enough money. When we are in that position, we feel more confident about the future and ourselves. That means having earnings that cover expenses with cash left over to save and invest. Arriving at and maintaining this position is not always easy and can take a considerable amount of time and discipline. To find companies that exemplify this enviable station, we focused on large cap stocks in the basic materials sector that are running like well-oiled machines. They demonstrate efficiency by steadily driving up profits and have built solid cash reserves that can be accessed for maintenance or acquisitions. If large cap basic materials stocks that are matched in liquidity and profits appeal to you, then you will find our list below worthy of further investigation.
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 large cap basic materials stocks. We next screened for businesses with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS Growth Rate>10%). We then looked for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2).
Do you think these large-cap stocks have a strong outlook? Use our list along with your own analysis.
1) 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.
2) CF Industries Holdings, Inc. (CF)
|Operating Profit Margin||48.35%|
|Earnings Per Share Growth Rate||311.81%|
CF Industries Holdings, Inc., through its subsidiary, CF Industries, Inc., manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. It operates in two segments, Nitrogen and Phosphate. The company was founded in 1946 and is headquartered in Deerfield, Illinois.
3) Teck Resources Limited (TCK)
|Industry||Industrial Metals & Minerals|
|Operating Profit Margin||30.28%|
|Earnings Per Share Growth Rate||46.42%|
Teck Resources Limited operates as a diversified mining, mineral processing, and metallurgical company. It is involved in exploring, developing, smelting, refining, safety, environmental protecting, product stewardship, recycling, and researching activities. The company was formerly known as Teck Cominco Limited and changed its name to Teck Resources Limited in April 2009. Teck Resources Limited was founded in 1906 and is headquartered in Vancouver, Canada.
4) Chemical & Mining Co. of Chile Inc. (SQM)
|Industry||Chemicals - Major Diversified|
|Operating Profit Margin||37.25%|
|Earnings Per Share Growth Rate||42.82%|
Chemical and Mining Company of Chile Inc. engages in the production and sale of fertilizers and specialty chemicals in Chile and internationally. The company's specialty plant nutrients include potassium nitrate, sodium nitrate, sodium potassium nitrate, and specialty blends for crops, such as vegetables, fruits, flowers, potatoes, and cotton, as well as Ultrasol for application via fertigation; Qrop for field application; Speedfol for foliar application; Allganic for organic farming; and Nutrilake for aquaculture. The company was founded in 1968 and is based in Santiago, Chile.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 10/18/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.