Benjamin Graham, the father of value investing, recommended to stick to stocks that have a current ratio of more than 2 and more working capital than long-term debt.
When the current ratio is higher than 2, the company has produced sufficient liquidity to pay back its short-term creditors. The ratio is calculated total current assets divided by total current liabilities.
When the working capital exceeds the long-term debt by a wide margin, it means that the business will likely be able to honor its long-term debt obligations. The working capital is the difference between total current assets and total current liabilities.
Thus, investors may want to consider the following stocks, as they meet the above criteria.
Bio-Rad Laboratories Inc
The first stock that makes the cut is Bio-Rad Laboratories Inc (BIO, Financial), a Hercules, California-based manufacturer and marketer of devices for clinical diagnostic and life science research organizations in North America and internationally.
The stock has a current ratio of 3.39, which is more appealing than the industry median of 2.76.
Bio-Rad Laboratories Inc has trailing 12-month working capital of about $1.51 billion and long-term debt of about $12.3 million as of the most recent fiscal year.
GuruFocus assigned a rating of 8 out of 10 for the company's financial strength and a rating of 7 out of 10 for its profitability.
The share price closed at $559.22 on Wednesday for a market capitalization of $16.90 billion and a 52-week range of $309.38 to $689.
Wall Street sell-side analysts recommend a median rating of overweight and an average target price of $752.50 per share for the stock.
Balchem Corp
The second stock that makes the cut is Balchem Corp (BCPC, Financial), a New Hampton, New York-based developer of specialty chemicals mainly for human and animal nutrition.
The stock has a current ratio of 2.83, which appeals more than the industry median of 1.89.
Balchem Corp has trailing 12-month working capital of about $172.46 million, which exceeds the long-term debt of $163.57 million as of the most recent fiscal year.
GuruFocus assigned a rating of 7 out of 10 for both the company's financial strength and its profitability.
The stock closed at $131.25 on Wednesday for a market capitalization of $4.25 billion and a 52-week range of $78.3 to $132.50.
Wall Street sell-side analysts recommend a median rating of overweight and an average target price of $136.50 per share for the stock.
Reata Pharmaceuticals Inc
The third stock that makes the cut is Reata Pharmaceuticals Inc (RETA, Financial), a Plano, Texas-based clinical-stage biopharmaceutical developer of novel treatments for patients with serious or deadly diseases.
The stock has a current ratio of 7.11, which is more appealing than the industry median of 4.76.
Reata Pharmaceuticals Inc has trailing 12-month working capital of $728.14 million and no long-term debt as of the most recent fiscal year.
GuruFocus assigned a rating of 7 out of 10 for the company's financial strength and a rating of 1 out of 10 for its profitability.
The stock closed at $116.85 on Wednesday for a market capitalization of $4.23 billion and a 52-week range of $88.17 to $186.82.
Wall Street sell-side analysts recommend a median rating of buy and an average target price of $244.29 per share for the stock.
Disclosure: I have no positions in any securities mentioned.
Read more here:
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- A Trio of Strong Performers to Consider
- 3 Graham-Style Stock Picks for the Value Investor
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