On an individual level, most of us strive to be cash positive. We know it places us in a position to take advantage of investment opportunities and make larger purchases. Applying this same frame of mind to our investments, it makes sense that we prefer those that are profitable and have a high level of liquidity. These qualities demonstrate competency and discipline in terms of financial oversight. With this in mind, we scanned for large cap stocks with strong earnings and an attractive amount of cash on hand. Check out the list of large cap stocks below to see if any capture your interest.
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.
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 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 stocks. We next screened for businesses with strong profit margins (1-year operating margin>15%)(Net Margin [TTM] >10%). Next, we then screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these large-cap stocks should be trading higher? Use our list along with your own analysis.
1) Allergan Inc. (AGN)
| Sector | Healthcare |
| Industry | Drug Manufacturers - Other |
| Market Cap | $28.07B |
| Beta | 0.80 |
Key Metrics
| Operating Profit Margin | 27.57% |
| Net Margin | 18.84% |
| Current Ratio | 4.42 |
| Quick Ratio | 4.15 |
| Short Interest | 1.03% |
Allergan, Inc. operates as a multi-specialty healthcare company primarily in the United States, Europe, Latin America, and the Asia Pacific. The company discovers, develops, and commercializes specialty pharmaceutical, biologics, medical device, and over-the-counter products for the ophthalmic, neurological, medical aesthetics, medical dermatological, breast aesthetics, obesity intervention, urological, and other specialty markets worldwide. It operates in two segments, Specialty Pharmaceuticals and Medical Devices. Allergan, Inc. was founded in 1948 and is headquartered in Irvine, California.
2) Stryker Corp. (SYK)
| Sector | Healthcare |
| Industry | Medical Appliances & Equipment |
| Market Cap | $19.94B |
| Beta | 0.87 |
Key Metrics
| Operating Profit Margin | 20.96% |
| Net Margin | 16.74% |
| Current Ratio | 4.85 |
| Quick Ratio | 4.01 |
| Short Interest | 1.48% |
Stryker Corporation, together with its subsidiaries, operates as a medical technology company. The company operates in three segments: Reconstructive, MedSurg, and Neurotechnology and Spine. The Reconstructive segment offers orthopaedic reconstructive (hip and knee) and trauma implant systems, as well as other related products. Stryker Corporation was founded in 1941 and is headquartered in Kalamazoo, Michigan.
3) Fastenal Company (FAST)
| Sector | Industrial Goods |
| Industry | General Building Materials |
| Market Cap | $12.76B |
| Beta | 0.96 |
Key Metrics
| Operating Profit Margin | 21.35% |
| Net Margin | 13.31% |
| Current Ratio | 6.59 |
| Quick Ratio | 3.46 |
| Short Interest | 5.26% |
Fastenal Company, together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies in the United States and internationally. It offers fastener product line under two categories, which include threaded fasteners, such as bolts, nuts, screws, studs, and related washers that are used in manufactured products and building projects, as well as in the maintenance and repair of machines and structures; and miscellaneous supplies and hardware comprising various pins and machinery keys, concrete anchors, metal framing systems, wire ropes, strut products, rivets, and related accessories. The company was founded in 1967 and is headquartered in Winona, Minnesota.
4) Zimmer Holdings, Inc. (ZMH)
| Sector | Healthcare |
| Industry | Medical Appliances & Equipment |
| Market Cap | $11.18B |
| Beta | 1.02 |
Key Metrics
| Operating Profit Margin | 23.86% |
| Net Margin | 17.25% |
| Current Ratio | 5.09 |
| Quick Ratio | 3.69 |
| Short Interest | 2.47% |
Zimmer Holdings, Inc., through its subsidiaries, engages in the design, development, manufacture, and marketing of orthopedic reconstructive devices, spinal and trauma devices, dental implants, and related surgical products in the Americas, Europe, and the Asia Pacific. The company was founded in 1927 and is headquartered in Warsaw, Indiana.
5) Celgene Corporation (CELG)
| Sector | Healthcare |
| Industry | Biotechnology |
| Market Cap | $32.06B |
| Beta | 0.52 |
Key Metrics
| Operating Profit Margin | 34.01% |
| Net Margin | 30.00% |
| Current Ratio | 2.93 |
| Quick Ratio | 2.77 |
| Short Interest | 1.14% |
Celgene Corporation, a biopharmaceutical company, discovers, develops, and commercializes various therapies to treat cancer and immune-inflammatory related diseases primarily in the United States and Europe. The company was founded in 1980 and is headquartered in Summit, New Jersey.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 10/26/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
