Benjamin Graham's financial strength criteria indicate that if investors screen for securities that have a current ratio higher than 2 and more working capital than long-term debt, their search should be more likely to find high-quality companies.
The current ratio, which is calculated as total current assets divided by total current liabilities, helps evalueate whehter a company is capable of paying its short-term financial obligations.
A working capital that exceeds long-term debt signals that the balance sheet stands on solid financial pillars for the company to continue to operate its business fluently and meet all its long-term financial obligations.
In addition to meeting the above criteria, the three stocks listed below also have positive ratings from sell-side analysts on Wall Street ranging between hold and overweight.
Schneider National
One company I found by searching these criteria was Schneider National Inc. (SNDR, Financial). Based in Green Bay, Wisconsin, the company is a provider of truckload, intermodal and logistics solutions in the U.S. and Canada.
Schneider National has a current ratio of 2.19, which is higher than the industry median of 1.17 and beats 716 out of a total of 872 industry competitors.
The GuruFocus chart below shows that Schneider National’s trailing 12-month working capital was $802 million and its trailing 12-month long-term debt was $522.6 million as of the end of fiscal 2018.
GuruFocus assigned a rating of 7 out of 10 for the company’s financial strength and a rating of 6 out of 10 for its profitability.
Shares of Schneider National Inc. closed at $21.82 on Tuesday for a market capitalization of $3.86 billion. The stock has a price-earnings ratio of 22.04 versus the industry median of 15.14 and a price-sales ratio of 0.79 compared to the industry median of 0.77.
Wall Street issued an overweight recommendation rating for this stock with an average target price of $25.36 per share, reflecting a 16.2% upside.
Luminex
The second company I found using the above criteria was Luminex Corporation (LMNX, Financial). Headquartered in Austin, Texas, the company is a global provider of proprietary biological testing instruments supplying diagnostics, pharmaceutical and research industries.
The stock has a current ratio of 3.52, which tops the industry median of 2.39 and is ranked higher than 437 out of a total of 648 industry competitors.
According to GuruFocus, as of the end of fiscal 2018, the trailing 12-month working capital of Luminex Corporation was $151.4 million while its trailing 12-month long term debt was $0.00.
GuruFocus assigned a rating of 7 out of 10 for the company’s financial strength and a rating of 8 out of 10 for its profitability.
Shares of Luminex Corporation closed at $23.16 on Tuesday for a market capitalization of $1.04 billion. The stock has a price-book ratio of 2.23 versus the industry median of 3.13 and a price-sales ratio of 3.14 versus the industry median of 3.48.
Wall Street issued a hold recommendation rating for this stock with an average target price of $23.75, which reflects a 2.5% upside from Tuesday’s closing price.
CompX International
The third company I found using the above criteria was CompX International Inc. (CIX, Financial). The company is based in Dallas, Texas and sells security products and recreational marine components in the U.S. and Canada.
CompX International has a current ratio of 6.41, which is higher than the industry median of 1.62 and beats 948 peers out of a total of 1,025 industry competitors.
Based on the chart below, as of the end of fiscal 2018, CompX International’s trailing 12-month working capital was $62.61 million and its trailing 12-month long-term debt was $0.00.
GuruFocus assigned a rating of 10 out of 10 for the company's financial strength and a rating of 7 out of 10 for its profitability.
Shares of CompX International closed at $14.59 on Tuesday for a market capitalization of $181.54 million. The stock has a price-earnings ratio of 11.77 versus the industry median of 17.52 and a price-sales ratio of 1.49 versus the industry median of 0.98.
Wall Street issued a hold recommendation rating for this stock and has established an average target price of $24.00, reflecting a 64.5% upside.
Disclosure: I have no positions in any securities mentioned.
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