Benjamin Graham suggested picking companies that have a current ratio higher than 2 and more working capital than long-term debt, as these companies have have high financial strength.
A current ratio higher than 2 means that a company has enough funds to reimburse its short-term creditors. It is calculated by dividing the total current assets by the total current liabilities.
When working capital is higher than long-term debt, it means the company’s resources are capable of meeting the financial obligations from long-term debt. The working capital is the difference between total current assets and total current liabilities.
This trio of stocks also received overweight recommendation ratings from sell-side analysts in Wall Street, which means that the share prices are predicted to outperform in the next 12 months.
Gentex
Gentex Corp. (GNTX, Financial) is a Zeeland, Michigan-based auto parts supplier.
The stock has a current ratio of 5.53, which is much better than the industry median of 1.44.
Gentex has a trailing 12-month working capital of $778.53 million and no long-term debt as of the most recent full fiscal year.
GuruFocus assigned the highest rating of 10 out of 10 for the company’s financial strength and profitability.
Gentex traded at a share price of $25.21 at close on Friday for a market capitalization of $6.33 billion. The Peter Lynch chart indicates that the stock is not expensive since.
Wall Street issued an average target price of $29.86 per share, reflecting 18.5% upside from Friday’s closing price.
Exponent
Exponent Inc. (EXPO, Financial) is a California-based science and engineering consulting company.
The company has a current ratio of 2.94, which is much better than the industry median of 1.62.
Exponent has a trailing 12-month working capital of $240.1 million and no long-term debt as of the most recent full fiscal year.
GuruFocus assigned a 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.
Exponent traded at a price of $67.69 per share at close on Friday for a market capitalization of $3.51 billion.
The Peter Lynch chart indicates that the stock doesn’t trade cheaply.
Wall Street issued an average target price of $76 per share, which represents a 12.3% upside.
Marten Transport
Marten Transport Ltd. (MRTN, Financial) is a Mondovi, Wisconsin-based operator of a temperature-sensitive truckload carrier for shipping companies in North America.
The stock has a current ratio of 2.02, which is positioned more strongly than the industry median of 1.13.
Marten Transport has a trailing 12-month working capital of $77.84 million and no long-term debt as of the most recent full fiscal year.
GuruFocus assigned a rating of 7 out of 10 for the company’s financial strength and its profitability.
Marten Transport traded at a price of $17.94 per share at close on Friday for a market capitalization of $982.52 million. The Peter Lynch chart suggests that this stock is not expensive.
Wall Street issued an average target price of $23 per share, mirroring a 28.2% upside from Friday’s closing price.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- Wall Street Suggests Catching These 2 Falling Knives
- These Graham-Style Stocks Seem Fairly Priced
- 3 Strong Performers to Consider
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