To increase the likelihood of unearthing high-quality companies, Benjamin Graham, the pioneer of value investing, recommended screening the market for stocks with a current ratio of more than 2 and higher working capital than long-term debt.
A current ratio that exceeds 2 indicates that the company can generate 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 is more than the long-term debt, it means that the business can most likely produce more than enough cash resources to meet all of their long-term obligations. The working capital is the difference between total current assets and total current liabilities.
Thus, investors may be interested in the following stocks, as they meet the above criteria.
Smith & Wesson Brands Inc
Smith & Wesson Brands Inc (SWBI, Financial) is a Springfield, Massachusetts-based global manufacturer and seller of firearms.
The stock has a current ratio of 2.26, which appeals more than the industry median of 1.52.
Smith & Wesson has trailing 12-month working capital of nearly $266 million, which, as of the end of the most recent full fiscal year ended on April 28, 2020, exceeds the long-term debt of $159.2 million, as the below chart shows.
GuruFocus assigned a high rating of 8 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 closed at $15.19 per share on Friday for a market capitalization of $849.18 million, a price-book ratio of 1.94 and a 52-week range of $4.16 to $22.40.
Wall Street recommends an overweight rating with an average target price of $23.25 per share for this stock.
Louisiana-Pacific Corp
Louisiana-Pacific Corp (LPX, Financial) is a Nashville, Tennessee-based building materials producer.
The stock has a current ratio of 3.15, which is more compelling than the industry median of 1.52.
Louisiana-Pacific Corp has trailing 12-month working capital of $375 million, surpassing the long-term debt of $347 million 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 positive rating of 5 out of 10 for its profitability.
The stock price closed at $31.13 per share at close on Friday for a market capitalization of $3.5 billion, a price-book ratio of 3.49 and a 52-week range of $12.97 to $34.35.
Wall Street recommends an overweight rating for the stock with an average target price of $37.13 per share.
LeMaitre Vascular Inc
LeMaitre Vascular Inc (LMAT, Financial) is a Burlington, Massachusetts-based designer and marketer of medical devices and implants to treat peripheral vascular diseases.
The stock has a current ratio of 2.1, which is less appealing than the industry median of 2.49 but still above 2.
LeMaitre Vascular has trailing 12-month working capital of $71.2 million 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 high rating of 8 out of 10 for its profitability.
The stock closed at $32.96 per share at close on Friday for a market capitalization of $666.69 million, a price-book ratio of 4.36 and a 52-week range of $18.76 to $38.64.
Wall Street recommends an overweight rating with an average target price of $34.50 per share for the stock.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- 3 Graham-Style Stocks for the Value Investor
- 3 Top Performers to Consider
- A Duo of Underperforming Holdings to Reduce
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