Benjamin Graham's financial strength criteria indicates that if investors choose stocks that have a current ratio higher than 2 and more working capital than long-term debt, their search has a higher likelihood of turning up high-quality companies.
The current ratio indicates whether the company has enough funds to reimburse its short-term creditors and is calculated by dividing the total current assets by the total current liabilities.
The current ratio informs whether the financial resources of a company are enough to pay back its short-term creditors. The ratio is calculated by dividing total current assets by total current liabilities.
A working capital that exceeds long-term debt suggests that the company is able to satisfy all its long-term lenders as long as normal business operations are not significantly impacted. To obtain the working capital, total current liabilities are subtracted from total current assets.
Thus, investors may want to consider the following stocks, as they meet the above financial strength criteria. Furthermore, Wall Street sell-side analysts assigned positive recommendation ratings to them.
Hormel Foods
The first stock that meets the above-listed criteria is Hormel Foods Corp (HRL, Financial), an Austin, Minnesota-based producer and marketer of various meat and food products to retailers and other commercial customers in the U.S. and internationally.
The stock has a current ratio of 2.34, which is positioned more strongly than the industry median of 1.6.
On a trailing 12-month basis, Hormel Foods has a working capital of $1.26 billion and a long-term debt of $250 million as of the most recent full fiscal year.
GuruFocus assigned the near the top score of 9 out of 10 to the company’s financial strength rating and a very high score of 8 out of 10 to the company’s profitability rating.
Hormel Foods traded at a share price of $44.85 at close on Tuesday for a market capitalization of $24.12 billion. The Peter Lynch chart indicates that the stock isn’t trading cheaply.
Wall Street recommends a hold rating for this stock and has set an average target price of $41.60 per share.
Old Dominion Freight Lines Inc
The second stock that meets the above-listed criteria is Old Dominion Freight Lines Inc (ODFL, Financial), a Thomasville, North Carolina-based provider of regional, inter-regional and national less-than-truckload and expedited transportation services in North America.
The company has a current ratio of 2.13, which is much better than the industry median of 1.13.
On a trailing 12-month basis, Old Dominion Freight Lines has a working capital of $500.75 million and a long-term debt of $45 million as of the most recent full fiscal year.
GuruFocus assigned the near the top score of 9 out of 10 to both the company’s financial strength rating and its profitability rating.
Old Dominion Freight Lines Inc traded at a price of $125.25 per share at close on Tuesday for a market capitalization of $14.97 billion.
The Peter Lynch chart indicates that the stock is not expensive, as its share price trades close to the earnings line.
Wall Street recommends holding this stock and has set an average target price of $199.91 per share.
Gorman-Rupp Co
The third stock that meets the above-listed criteria is Gorman-Rupp Co (GRC, Financial), a Mansfield, Ohio-based designer, manufacturer and seller of pumps and pump systems worldwide.
The stock has a current ratio of 5, which is much better than the industry median of 1.87.
On a trailing 12-month basis, Gorman-Rupp has a working capital of $182.17 million and no long-term debt as of the most recent full fiscal year.
GuruFocus assigned the highest score of 10 out of 10 to the financial strength rating and a very high score of 8 out of 10 to the profitability rating of the company.
Gorman-Rupp Co traded at a price of $27.81 per share at close on Tuesday for a market capitalization of $724.94 million. The Peter Lynch chart suggests that this stock is not at its cheapest.
Wall Street recommends buying shares of this stock and has set an average target price of $41 per share.
Disclosure: I have no positions in any securities mentioned
Read more here:
- Wall Street Suggests Picking Up These 2 Falling Knives
- These 3 Graham-Style Stocks Look Reasonably Priced
- A Trio of Strong Performers to Hold
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