To have a higher chance to unearth high-quality companies, Benjamin Graham, the founder of value investing, suggested picking stocks with a current ratio of more than 2 and higher working capital than long-term debt.
A current ratio of more than 2 indicates that a company has the means to handle its short-term obligations. The ratio is calculated by dividing the total current assets by the total current liabilities.
When working capital is higher than long-term debt, it indicates the business can generate more than it needs to pay long-term debt. The working capital is the difference between total current assets and total current liabilities.
Thus, investors may want to have a look at the following companies, as they possess the above criteria.
IDEX Corp
IDEX Corp (IEX, Financial) is a Lake Forest, Illinois-based producer and distributor of fluid and flow metering technologies, medical technologies and fire and safety products.
The stock has a current ratio of 3.51, which is better than the industry median of 1.9.
IDEX Corp has trailing 12-month working capital of $903.56 million and long-term debt of $848.86 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.
The stock price traded at $152.59 per share at close on Friday for a market capitalization of $11.5 billion, a price-book ratio of 5.23 and a 52-week range of $104.56 to $178.14.
Sanderson Farms Inc
Sanderson Farms Inc (SAFM, Financial) is a Laurel, Mississippi-based producer and distributor of fresh, frozen and processed chicken products in the U.S.
The stock has a current ratio of 3.04, which is better than the industry median of 1.57.
Sanderson Farms Inc has trailing 12-month working capital of $365.43 million and long-term debt of $55 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 very good rating of 7 out of 10 for its profitability.
The stock price traded at around $121.19 per share at close on Friday for a market capitalization of $2.7 billion, a price-book ratio of 1.94 and a 52-week range of $102.13 to $179.45.
Consolidated Water Co Ltd
Consolidated Water Co Ltd (CWCO, Financial) is a Cayman Islands-based owner and operator of plants for the production and treatment of water to distribute in the Cayman Islands, the Bahamas, the U.S. and Indonesia.
The stock has a current ratio of 8.11, which is much better than the industry median of 1.05.
Consolidated Water has trailing 12-month working capital of $65.27 million and hardly any long-term debt as of the most recent full fiscal year.
GuruFocus assigned a high rating of 9 out of 10 for the company’s financial strength and a positive rating of 6 out of 10 for its profitability.
The stock price traded at $14.77 per share at close on Friday for a market capitalization of $223.24 million, a price-book ratio of 1.38 and a 52-week range of $12 to $18.83.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- Wall Street Suggests Buying These 2 Falling Knives
- A Trio of High Performers to Consider
- 3 Graham-Style Stocks for the Value Investor
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