To enhance your chances of finding high-quality companies, one way is to follow Benjamin Graham’s recommendations.
The pioneer of value investing, co-author with David Dodd of "Security Analysis" and author of "The Intelligent Investor," recommended that investors look for stocks with a current ratio higher than 2 and more working capital than long-term debt. These stocks have a better chance to beat the market due to their financial strength.
These two metrics can tell us whether the company is generating enough funds to sustain operations and pay off both short-term and long-term lenders.
The current ratio is built by dividing total current assets by total current liabilities, while the working capital is the difference between total current assets and total current liabilities.
In addition to the above-listed criteria, these three stocks also have positive recommendation ratings from sell-side analysts on Wall Street.
J&J Snack Foods
J&J Snack Foods Corp. (JJSF, Financial) is a Pennsauken, New Jersey-based manufacturer and distributor of nutritional snack foods and beverages in North America.
The stock has a current ratio of 3.69, which is much better than the industry median of 1.57.
J&J Snack Foods Corp has a trailing 12-month working capital of $385.12 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 profitability.
J&J Snack Foods Corp was trading at a share price of $164.26 at close on Monday for a market capitalization of $3.11 billion. The Peter Lynch chart indicates that the stock is not at its cheapest.
Wall Street issued a hold recommendation rating for shares of J&J Snack Foods Corp with an average target price of $174 per share.
Raven Industries
Raven Industries Inc. (RAVN, Financial) is a Sioux Falls, South Dakota-based specialty industrial machinery company.
The company has a current ratio of 5.75, which is much better than the industry median of 1.84.
Raven Industries has a trailing 12-month working capital of $150.02 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 very high rating of 9 out of 10 for its profitability.
Raven Industries Inc was trading at a price of $29.25 per share at close on Monday for a market capitalization of $1.05 billion.
The Peter Lynch chart indicates that the stock is not cheap.
Wall Street issued an overweight recommendation rating for shares of Raven Industries Inc with an average target price of $34.33 per share.
Cognizant Technology Solutions
Cognizant Technology Solutions Corp. (CTSH, Financial) is a Teaneck, New Jersey-based a professional provider of consulting, technology and outsourcing services worldwide.
The stock has a current ratio of 2.55, which is much better than the industry median of 1.69.
Cognizant Technology Solutions Corporation has a trailing 12-month working capital of $4.63 billion and a trailing 12-month long-term debt of $700 million 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 a very high rating of 9 out of 10 for its profitability.
Cognizant Technology Solutions Corporation was trading at a price of $61.33 per share at close on Monday for a market capitalization of $33.65 billion. The Peter Lynch chart suggests that this stock is trading near its intrinsic value.
Wall Street issued a hold recommendation rating for shares of Cognizant Technology Solutions Corporation and has set an average target price of $68.33 per share.
Disclosure: I have no positions in any securities mentioned.
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