Benjamin Graham, the father of value investing, suggested screening the market for stocks that have a current ratio of more than 2 and more working capital than long-term debt.
A current ratio of more than 2 indicates a company can produce sufficient liquidity to pay its short-term creditors. The ratio is calculated by dividing the total current assets by the total current liabilities.
When the working capital stands above the long-term debt by a substantial margin, it means the business can most likely meet all of the long-term obligations. The working capital is the difference between total current assets and total current liabilities.
Thus, investors may want to consider the following stocks, as they meet the above criteria.
Cognex Corp
Cognex Corp (CGNX, Financial) is a Natick, Massachusetts-based provider of machine vision products for manufacturing and distribution industries worldwide.
The stock has a current ratio of 4.47, which is more compelling than the industry median of 1.9.
Cognex Corp has trailing 12-month working capital of about $486.75 million and no long-term debt as of the most recent fiscal year.
GuruFocus assigned a high rating of 8 out of 10 for both the company's financial strength and its profitability.
The stock price traded at $69.19 per share on Monday for a market capitalization of $11.97 billion, a price-book ratio of 8.67 and a 52-week range of $35.20 to $69.50.
Wall Street recommends a hold rating with an average target price of $58.75 per share for this stock.
Expeditors International of Washington Inc
Expeditors International of Washington Inc (EXPD, Financial) is a Seattle, Washington-based provider of logistics services in the U.S. and internationally.
The stock has a current ratio of 2.22, which is more appealing than the industry median of 1.14.
Expeditors International of Washington Inc has trailing 12-month working capital of $1.6 billion and no long-term debt as of the most recent fiscal year.
GuruFocus assigned a very good 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.
The stock price traded at $88.39 per share at close on Monday for a market capitalization of $14.82 billion, a price-book ratio of 6.83 and a 52-week range of $52.55 to $89.12.
Wall Street recommends a hold rating for the stock with an average target price of $88.39 per share.
NetEase Inc
NetEase Inc (NTES, Financial) is a Chinese provider of various online services, promoting community, information, communication and trade in the Peoples' Republic of China and internationally.
The stock has a current ratio of 2.46, which is more appealing than the industry median of 2.19.
NetEase Inc has trailing 12-month working capital of nearly $6.7 billion and no long-term debt as of the most recent fiscal year.
GuruFocus assigned a very good rating of 7 out of 10 for the company's financial strength and the highest rating of 10 out of 10 for its profitability.
The stock was trading at $487.21 per share at close on Monday for a market capitalization of $62.34 billion, a price-book ratio of 6.09 and a 52-week range of $235.01 to $517.65.
Wall Street recommends a buy rating with an average target price of approximately $542.24 per share for the stock.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- 3 Benjamin Graham-Style Stocks
- 3 Strong Performers to Consider
- 3 Proposals for Growth-Focused Investors
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