5 Balance Sheet Bargains

Includes: DD, DVN, INTC, MCHP, NSC
by: John Connors

The purpose of this screen is to identify strong companies with stocks that may have already, or very soon will be, bottoming. Of course, depending on your view, these may also be short sale candidates given they are bouncing around their 52 week lows.

This screen looks for highly liquid stocks (average of more than 2 million shares traded daily), strong short term asset positions (quick ratio greater than one), price within 5% of the 52 week low and a price greater than $5. The most recent run of this screen yielded five stocks.

(NYSE:DD) - Dupont. This diversified chemical maker has had a rough ride following the most recent quarterly announcement. DD's quick ratio is a healthy 1.1 but upon closer inspection, their inventory and other current assets spiked last quarter which could be a warning sign. Recent price action is showing some signs of bottoming, but be careful.

(NYSE:DVN) - Devon Energy. The independent energy company has plenty of cash on hand with a quick ratio of 1.71. DVN has a nice clean balance sheet. With the analysts presenting a one year target of $72, currently trading at around $53 gives this a long term potential 43% upside. Coupled with a beta of 1.3 this could be both a good short and long term trade.

(NASDAQ:INTC) - Intel. With a quick ratio of 1.48, they have plenty of short term liquidity. However, the underlying trend is concerning that the short term assets decreased last quarter while short term liabilities increased. This could be a seasonal shift but the trend in the PC and tablet markets may be the bigger driver. In addition, the move away from dividend paying stocks is also taking a toll. There is a strong bear case for this, but then again, when all the headlines are shouting in one direction, the move is often the opposite.

(NYSE:NSC) - Norfolk Southern. At first glance this railroad has a decent quick ratio of 1.07 and appears to be sitting on plenty of cash. Looking over the last three fiscal years, NSC's quick ratio has declined from 1.16 to 1.1 to 0.9. The jump in the most recent quarter to 1.07 seems to have been fueled by an increase in long term debt. This could be a warning sign making this a stronger short candidate, possibly explaining why this is trading near its 52 week low.

The star of this screen has to be (NASDAQ:MCHP) - Microchip Technology. MCHP makes embedded semi-conductors and recently announced a strategy to expand into mobile devices. Prudent cash managers, they have a whopping 6.15 quick ratio. In fact, based on the last reported balance sheet, they could pay off both the short term and long term debt with their current assets. With this strong of a position, MCHP deserves closer look.

Do your own research; this list is intended only as a starting point. You may decide to either go long or short. Given that these are playing near 52 week lows and that over the next few weeks Wall Street is likely to be edgy on news from Washington, be careful and set stop losses. For tight money management set them close or if you prefer to manage using mental stops, at least set a wide catastrophic stop.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MCHP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Problem with this article? Please tell us. Disagree with this article? .