To increase the likelihood to uncover high-quality companies, Benjamin Graham, the founder of value investing, recommended choosing stocks with a current ratio of more than 2 and higher working capital than long-term debt. These two metrics can tell us whether the company is providing enough money for sustaining operations and paying off both short-term and long-term lenders.
The current ratio is calculated by dividing the total current assets by the total current liabilities. The working capital is the difference between total current assets and total current liabilities.
In addition to meeting the above criteria, these three stocks also have positive ratings from sell-side analysts on Wall Street.
Donaldson Co Inc
Donaldson Co Inc (DCI, Financial) is a Minneapolis-based manufacturer and seller of several systems to filter air and liquids.
The company has a current ratio of 2.25, which is better than the industry median of 1.88.
Donaldson Co Inc has a trailing 12-month working capital of $640 million and a trailing 12-month long-term debt of $584 million as of the most recent full fiscal year.
GuruFocus assigned a positive rating of 6 out of 10 for the financial strength and a high rating of 9 out of 10 for the profitability of the company.
Donaldson Co Inc traded at a share price of $42.67 at close on April 10 for a market capitalization of $5.41 billion and for a price-earnings ratio of 20.92.
Wall Street issued a hold recommendation rating for the company's shares with an average target price of $42 per share.
Littelfuse Inc
Littelfuse Inc (LFUS, Financial) is a Chicago-based manufacturer and seller of fuses, fuse accessories and diodes.
The company has a current ratio of 4.45, which is much better than the industry median of 1.95.
Littelfuse Inc has a trailing 12-month working capital of $778.83 million and a trailing 12-month long term debt of $669.16 million as of the most recent full fiscal year.
GuruFocus assigned a positive rating of 6 out of 10 for the company's financial strength and a high rating of 9 out of 10 for its profitability.
Littelfuse Inc traded at a price of $138.05 per share at close on April 10 for a market capitalization of $3.37 billion and for a price-earnings ratio of 24.7.
Wall Street issued an overweight recommendation rating for the stock with an average target price of $176 per share.
Franklin Electric Co Inc
Franklin Electric Co Inc (FELE, Financial) is a Fort Wayne, Indiana-based manufacturer and worldwide distributor of systems to pump water and fuel.
The company has a current ratio of 3.05, which is higher than the industry median of 1.88.
Franklin Electric Co Inc has a trailing 12-month working capital of $381.68 million and a trailing 12-month long term debt of $93.14 million as of the most recent full fiscal year.
GuruFocus assigned a very good rating of 7 out of 10 for the company’s financial strength and a high rating of 8 out of 10 for its profitability.
Franklin Electric Co Inc traded at a price of $51.90 per share at close on April 10 for a market capitalization of $2.41 billion.
Wall Street issued a hold recommendation rating with an average target price of $48 per share.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- This Trio of Strong Performers Is Predicted to Outperform
- These 3 Graham-Style Stocks Appear Fairly Priced
- A Due of Underperforming Holdings to Ease Up On
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