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  • 3 Highly Liquid Mid Cap Stocks Keeping Debt At Bay 0 comments
    Sep 14, 2012 4:10 PM | about stocks: DLB, MRVL, TNH

    There are many different approaches to building an investment portfolio. Sometimes we go with companies that are providing goods or services that are on the cutting edge or we have a personal connection to a company and believe in its mission. Regardless of what brings you to a stock, it is always important for a company to have the essential building blocks that comprise a strong foundation and foster growth. With this in mind we focused on stocks at the mid cap level, as by their nature they tend to be more established and offer greater protection with plenty of room for expansion. The components we focused on today were liquidity and debt. When a company has minimal long term debt and has built up a cash reserve, it points to strong fiscal management, efficient operations, and a steady source of income generation. See the short list of mid caps with high levels of liquidity and little debt we have summarized below to start your own assessment.

    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).

    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.

    We first looked for mid cap stocks. We then screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then looked for companies that operate with little to no long term debt (Long Term D/E Ratio<.1). We did not screen out any sectors.

    Do you think these mid-cap stocks will continue to see such strong profitability? Use this list as a starting-off point for your own analysis.

    1) Terra Nitrogen Company, L.P. (NYSE:TNH)

    Sector Basic Materials
    Industry Agricultural Chemicals
    Market Cap $4.07B
    Beta 0.77

    TNH stock chart

    Key Metrics

    Current Ratio 7.62
    Quick Ratio 6.84
    Long Term Debt/Equity Ratio 0.00
    Short Interest 4.02%

    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) Marvell Technology Group Ltd. (NASDAQ:MRVL)

    Sector Technology
    Industry Semiconductor - Integrated Circuits
    Market Cap $5.69B
    Beta 1.22

    MRVL stock chart

    Key Metrics

    Current Ratio 4.68
    Quick Ratio 4.12
    Long Term Debt/Equity Ratio 0.00
    Short Interest 1.17%

    Marvell Technology Group Ltd. designs, develops, and markets analog, mixed-signal, digital signal processing, and embedded and standalone ARM-based microprocessor integrated circuits. It offers mobile and wireless products comprising communications processors; modem processors; Wi-Fi and other communication protocols, including Bluetooth and/or FM; mobile computing products; and connected home computing products. The company also provides a range of integrated data storage products, including hard disk drive, solid-state drive, hybrid hard disk drive, and optical disk drive controllers, as well as storage-system products. In addition, it offers networking products comprising cloud infrastructure products for home, private, and public cloud networks; and service provider infrastructure, including residential fiber access infrastructure and mobile Internet infrastructure, as well as the transition to intellectual property radio access networks.

    Further, the company provides printing ASIC products; digital video processing products; power management and green technology products, such as DSP switcher integrated regulators, analog switching regulators, and integrated power management IC products; and Smart-LED Lighting platform, as well as Smart Energy Platform driven by a Wi-Fi enabled microcontroller and integrated software. It operates in the United States, Canada, China, Germany, Hong Kong, India, Israel, Italy, Japan, Korea, Malaysia, the Netherlands, Singapore, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom. Marvell Technology Group Ltd. was founded in 1995 and is headquartered in Hamilton, Bermuda.

    3) Dolby Laboratories, Inc. (NYSE:DLB)

    Sector Technology
    Industry Diversified Electronics
    Market Cap $3.66B
    Beta 0.89

    DLB stock chart

    Key Metrics

    Current Ratio 7.67
    Quick Ratio 7.59
    Long Term Debt/Equity Ratio 0.00
    Short Interest 13.27%

    Dolby Laboratories, Inc. provides products, services, and technologies for the entertainment industry worldwide. It designs and manufactures video and audio products for film production, cinema, and television broadcast industries; and provides services to support film production, television broadcast, and music production. The company is involved in licensing technologies in signal processing systems that enhance sound quality or enable surround sound in movie soundtracks, DVDs, Blu-ray Discs, personal computers, digital televisions, mobile devices, video games, satellite and cable broadcasts, and online streaming; and developing technologies for mobile devices for 3D, digital cinema, post-production, and LED backlit LCD televisions. It also offers traditional cinema processors, which are used to read, decode, and play back a film's soundtrack and calibrate the sound system in a movie theater; digital cinema products for digital cinema encoding, distribution, and playback; digital 3D products that deliver a 3D image with an existing digital cinema server and white screen; and digital media adapters to adapt analog cinema audio systems to the digital audio technologies.

    In addition, Dolby Laboratories provides broadcast products to encode, transmit, and decode multiple channels of audio for DTV and HDTV program production and broadcast distribution; and professional reference monitor, a video monitor used in the production and post-production of cinematic and video content. The company licenses its technologies to media software vendors, such as operating system vendors, independent software vendors, and integrated circuit manufacturers; and manufacturers of home audio and video products, set top boxes, video game consoles, mobile devices, in-car entertainment systems, and personal computers. It sells its products directly to customers, as well as through dealers and distributors. The company was founded in 1965 and is based in San Francisco, California.

    *Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/14/2012.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

    Stocks: DLB, MRVL, TNH
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