For many large cap companies, they achieved their size through strong management and often laser-like focus, and most importantly, by focusing on generating reliable profits. When a company can do that, and is so successful that they can build up their cash reserves, you know that company is doing it right. Today, we focus on large caps in the basic materials space that have put money in their pockets by commanding strong earnings over time. We came up with a short, but interesting list.
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 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
We first looked for large cap basic materials stocks. We next screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). Next, we then screened for businesses with strong profit margins (1-year operating margin>15%)(Net Margin [TTM]>10%).
Do you think these large-cap stocks have a positive future in store? Use our list along with your own analysis.
1) Yamana Gold, Inc. (NYSE:AUY)
Yamana Gold, Inc. has a Current Ratio of 2.82, a Quick Ratio of 2.45, a Operating Profit Margin of 38.79%, and a Net Margin of 25.29%. The short interest was 0.60% as of 07/22/2012. Yamana Gold Inc. engages in the exploration, development, and production of mineral properties, primarily gold. It also explores for copper, molybdenum, zinc, and silver metals. The company's property portfolio includes seven operating gold mines, including Chapada mine, Jacobina mining complex, and Fazenda Brasileiro mine in Brazil; El Pen mine and Minera Florida mine in Chile; Gualcamayo mine in Argentina; and Mercedes mine in Mexico.
2) The Mosaic Company (NYSE:MOS)
The Mosaic Company has a Current Ratio of 3.43, a Quick Ratio of 2.79, a Operating Profit Margin of 23.51%, and a Net Margin of 17.26%. The short interest was 2.48% as of 07/22/2012. The Mosaic Company produces and markets concentrated phosphate and potash crop nutrients for the agriculture industry worldwide. The company also offers phosphate-based animal feed ingredients; and produces and sells potash for use as fertilizers and animal feed ingredients, as well as for use in industrial applications. Its potash products are also used for de-icing and as a water softener regenerant.
3) Chemical & Mining Co. of Chile Inc. (NYSE:SQM)
|Industry:||Chemicals - Major Diversified|
Chemical & Mining Co. of Chile Inc. has a Current Ratio of 3.23, a Quick Ratio of 2.00, a Operating Profit Margin of 35.87%, and a Net Margin of 27.05%. The short interest was 0.89% as of 07/22/2012. 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. It also produces iodine and iodine derivatives, which are used in a range of medical, pharmaceutical, agricultural, and industrial applications, including X-ray contrast media, polarizing films for liquid crystal displays (LCDs), antiseptics, biocides, and disinfectants; and in the synthesis of pharmaceuticals, herbicides, electronics, pigments, dye components, and heat stabilizers. In addition, the company provides lithium carbonate for use in various applications comprising batteries, frits for the ceramic and enamel industries, heat-resistant glass, primary aluminum, lithium bromine for use in air conditioner equipment, and continuous casting powder for steel extrusion, pharmaceuticals, and lithium derivatives; and lithium hydroxide, which is used as a raw material in the lubricating grease industry.
4) Goldcorp Inc. (NYSE:GG)
Goldcorp Inc. has a Current Ratio of 3.12, a Quick Ratio of 2.50, a Operating Profit Margin of 38.89%, and a Net Margin of 31.10%. The short interest was 0.73% as of 07/22/2012. Goldcorp Inc. engages in the acquisition, development, exploration, and operation of precious metal properties. It primarily explores gold, silver, copper, lead, and zinc. The company's principal mining properties include Red Lake, Porcupine, and Musselwhite gold mines in Canada; Peasquito gold/silver/lead/zinc mine, and Los Filos and El Sauzal gold mines in Mexico; Marlin gold/silver mine in Guatemala; Alumbrera gold/copper mine in Argentina; and Marigold and Wharf gold mines in the United States.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.