When we go to the doctor for an annual check up, most of us are hoping to hear that we have a clean bill of health. In terms of investments, it makes sense that we have that same desire for the companies that we entrust with our money. For our scan today, we focused on large cap tech stocks that are both profitable and have a high level of liquidity. These traits work together to point to well established companies that value fiscal prudence and oversight. Use the data and summaries below to begin your own assessment of these large cap tech stocks.
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 technology stocks. We next screened for businesses with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS growth rate>10%). We then screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2).
Do you think these large-cap stocks deserve to grow higher? Use our list along with your own analysis.
1) Roper Industries Inc. (ROP)
|Industry||Scientific & Technical Instruments|
|Operating Profit Margin||24.37%|
|Earnings Per Share Growth Rate||30.11%|
Roper Industries, Inc. designs, manufactures, and distributes radio frequency products and services, industrial technology products, energy systems and controls, and medical and scientific imaging products and software. It principally operates in the United States, Canada, Asia, Europe, the Middle East, and South America. Roper Industries, Inc. was founded in 1981 and is based in Sarasota, Florida.
2) Analog Devices Inc. (ADI)
|Industry||Semiconductor - Integrated Circuits|
|Operating Profit Margin||31.01%|
|Earnings Per Share Growth Rate||20.11%|
Analog Devices, Inc. engages in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits used in industrial, automotive, consumer, and communication applications. The company's signal processing products involve in converting, conditioning, and processing real-world phenomena, such as temperature, pressure, sound, light, speed, and motion into electrical signals. The company was founded in 1965 and is headquartered in Norwood, Massachusetts.
3) ARM Holdings plc (ARMH)
|Industry||Semiconductor - Specialized|
|Operating Profit Margin||35.68%|
|Earnings Per Share Growth Rate||28.75%|
ARM Holdings plc designs reduced instruction set computing microprocessors, physical intellectual property, and related technology and software. Its products and services include 16/32-bit RISC microprocessors cores, data engines, graphics intellectual property, and on-chip fabric intellectual property; embedded software; physical intellectual property; development tools; and consulting, support, and maintenance services. The company was founded in 1990 as Advanced RISC Machines Holdings Limited and changed its name to ARM Holdings plc in 1998. ARM Holdings is based in Cambridge, the United Kingdom.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 10/22/2012.