To have more of a chance to unearth high-quality companies, Benjamin Graham, the pioneer of value investing, suggested selecting stocks with a current ratio of more than two and higher working capital than long-term debt.
The current ratio lets us know whether the financial resources of a company are enough to pay off its short-term creditors. The ratio is a found by dividing total current assets by total current liabilities.
When the working capital (the difference between total current assets and total current liabilities) surpasses the long-term debt, it means the company has resources that are adequate to meet the financial obligation from long-term debt.
In addition to meeting the above criteria, these three stocks also have positive ratings from sell-side analysts on Wall Street.
Utah Medical Products
Utah Medical Products Inc (UTMD, Financial) is a Midvale, Utah-based developer, manufacturer and distributor of medical devices for U.S., European and international healthcare organizations.
The stock has a current ratio of 13.43, which is better than the industry median of 2.43.
Utah Medical Products has a trailing 12-month working capital of $51.44 million and no long-term debt as of the most recent full fiscal year.
GuruFocus assigned a high rating of 8 out of 10 for the company’s financial strength and for its profitability.
Utah Medical Products Inc was trading at a share price of $93.40 at close on Friday for a market capitalization of $346.24 million.
The Peter Lynch chart indicates that the stock is not cheap.
Wall Street issued a buy recommendation rating for shares of Utah Medical Products Inc.
NIC
NIC Inc (EGOV, Financial) is an Olathe, Kansas-based provider of various digital services to businesses and citizens in the United States.
The company has a current ratio of 3.11, which is better than the industry median of 1.71.
NIC Inc has a trailing 12-month working capital of $212.13 million and no long-term debt as of the most recent full fiscal year.
GuruFocus assigned a very positive rating of 7 out of 10 for the company's financial strength and a high rating of 8 out of 10 for its profitability.
NIC Inc was trading at a price of $21.07 per share at close on Friday for a market capitalization of $1.41 billion.
The Peter Lynch chart indicates that the stock is not trading at its cheapest price.
Wall Street issued an overweight recommendation rating for this stock with an average target price of $24.
Steven Madden
Steven Madden Ltd (SHOO, Financial) is a New York-based designer and marketer of fashion footwear and accessories for women, men and children worldwide.
The stock has a current ratio of 2.8, which is better than the industry median of 1.61.
Steven Madden has a trailing 12-month working capital of $478.44 million and no long-term debt as of the most recent full fiscal year.
GuruFocus assigned a very positive rating of 7 out of 10 for the company’s financial strength and a high rating of 8 out of 10 for its profitability.
Steven Madden Ltd was trading at a price of $37.34 per share at close on Friday for a market capitalization of $3.1 billion.
The stock is not cheap, according to the Peter Lynch chart.
Wall Street issued an overweight recommendation rating for this stock and has established an average target price of $41 per share.
Disclosure: I have no positions in any securities mentioned.
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