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Alberto Abaterusso
Alberto Abaterusso
Articles (2470) 

3 Highly Profitable Businesses With Solid Conditions

GuruFocus has assigned high scores for their financial strength and profitability ratings

October 23, 2020 | About:

Value investors may be interested in the following stocks, which represent companies with highly productive operating activities and solid financial conditions based on GuruFocus profitability and financial strength ratings of at least 7 out of 10.

Furthermore, sell-side analysts on Wall Street have issued positive recommendation ratings for each of them, increasing expectations for high-performing stocks.

Alphabet

The first stock that qualifies is the tech conglomerate, Alphabet Inc. (GOOGL).

GuruFocus rated its financial strength 9 out of 10, driven by Piotroski F-Score of 5 (out of 9) and an Altman Z-Score of 11.47 (greater than 2.99).These indicators suggest that the financial situation of Alphabet is stable, implying an extremely low risk for bankruptcy within the next two years.

Over the past 13 years, Alphabet's Altman Z-Score ranged between a low of 3.25 and a high of 93.81, with a median of 12.69. While the Piotroski F-Score ranged between a low of 4 and a high of 8.

Alphabet is also supported by a return on invested capital of 20.93%, which surpasses the weighted average cost of capital of 7.35%. This indicates the company's investments are returning more than what it costs it to raise the necessary funds.

GuruFocus rated its profitability 9 out of 10, driven by a net margin of 18.99% (versus the industry median of 1.66%), which is derived from net income of about $31.53 billion for the trailing 12 months ended June 30 on total revenue of $166.03 billion.

Alphabet's net margin ranks higher than 81% of the 523 companies that are operating in the interactive media industry.

The share price ($1,606.66 as of Oct. 22) has risen by 27.6% over the past year for a market capitalization of $1.10 trillion, a price-earnings ratio of 35.33 (versus the industry median of 32.16) and a price-book ratio of 5.28 (versus the industry median of 3.89).

Also, the price-sales ratio is 7.01 (versus the industry median of 4.02) and the 52-week range is $1,008.87 to $1,726.1.

On Wall Street, the stock has 13 strong buys, 25 buys and five hold recommendation ratings for an average target price of $1,758.61 per share.

Ansys

The second stock that qualifies is Ansys Inc. (ANSS), a Canonsburg, Pennsylvania-based global developer and marketer of engineering simulation software and services.

GuruFocus rated its financial strength 8 out of 10, driven by a Piotroski F-score of 4 (out of 9) and an Altman Z-Score of 15.52 (greater than 2.99), which indicate stable financial conditions plus an extremely low risk for bankruptcy.

During the past 13 years, the Altman Z-Score of Ansys ranged between a low of 2.93 and a high of 20.91, with a median of 9.05. The Piotroski F-Score ranged between a low of 4 and a high of 9, with a median of 7.

The ROIC of 12.06% exceeds the WACC of 8.3%. This ratio indicates the investment is generating a higher profit than the cost the company sustains for raising the capital needed for that investment.

GuruFocus rated Ansys' profitability 9 out of 10, driven by a return on capital of 240.18% (versus the industry median of 16.86%). It ranks higher than 91% of the 2,187 companies that are operating in the software industry.

The share price ($326.78 as of Oct. 22) has increased by 47.52% over the past year for a market capitalization of $27.97 billion, a price-earnings ratio of 71.02 (versus the industry median of 30.97) and a price-book ratio of 8.13 (versus the industry median of 3.42).

Also, the price-sales ratio is 18.6 (versus the industry median of 2.64) and the 52-week range is $200.07 to $357.93.

On Wall Street, the stock has two strong buys, 13 hold recommendation ratings and two underperform recommendation ratings for an average target price of $322.30 per share.

Lancaster Colony

The third stock that qualifies is Lancaster Colony Corp. (LANC), a Westerville, Ohio-based manufacturer and marketer of specialty food products for U.S. retail and foodservice markets.

GuruFocus rated its financial strength 7 out of 10, driven by a cash-to-debt ratio of 8.04 (versus the industry median of 0.46) and an Altman Z-Score of 18.6 (greater than 2.99). This suggests the company has an extremely low risk for bankruptcy within the next two years, plus a high liquid balance sheet which enables it to refund its debt through cash available on hand.

Over the past 13 years, Lancaster Colony's cash-to-debt ratio had a median of 0.72. The Altman Z-Score ranged between a low of 3 and a high of 23.08, with a median of 11.07.

The ROIC of 20.49% exceeds the WACC of 1.41%, indicating the company's investments are returning a higher profit than it costs to fund them.

GuruFocus rated its profitability 8 out of 10, driven by a return on capital of 49.3% (versus the industry median of 8.91%), which ranks higher than 90.78% of the 1,660 companies that are operating in the consumer packaged goods industry.

The share price ($182.39 as of Oct. 22) has risen by 31.56% over the past year for a market capitalization of $5.02 billion, a price-earnings ratio of 36.66 (versus the industry median of 19.13) and a price-book ratio of 6.41 (versus the industry median of 1.44).

Also, the price-sales ratio is 3.77 (versus the industry median of 0.98) and the 52-week range is $114.55 to $184.97.

On Wall Street, the stock has two buy and five hold recommendation ratings for an average target price of $195.67 per share.

Disclosure: I have no positions in any securities mentioned.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about how to pick potential value stocks. Gold, silver and precious metals mining industries is also my cup of tea. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master\\\'s Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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