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James Li
James Li
Articles (1542) 

4 Peter Lynch Growth Stocks With Good Financial Strength

Stocks have high cash-to-debt ratios

January 14, 2021 | About:

According to the All-in-one Screener, a Premium feature of GuruFocus, four Peter Lynch Growth stocks with high cash-to-debt ratios are Caledonia Mining Corp. PLC (CMCL), Humana Inc. (NYSE:HUM), Jewett-Cameron Trading Co. Ltd. (NASDAQ:JCTCF) and Worthington Industries Inc. (NYSE:WOR).

The Peter Lynch Growth Screen utilizes the Fidelity Magellan Fund manager's concept that one can compare a company's price line to an earnings line at 15 times earnings to determine if a stock is overvalued or undervalued. Stocks with a price-earnings ratio of less than 15 are considered undervalued based on Lynch's "quick" valuation method.


Other key criteria for the Peter Lynch Growth Screen include a GuruFocus business predictability rank of at least two stars and a 10-year revenue growth rate of at least 6%. Additionally, the Screener excludes industries like cyclical retail and banks: Lynch warned that for cyclical companies, price-earnings ratios may be artificially low during peaks of business cycles due to high net profit margins.

Cash-to-debt ratio has high correlation with stock return

GuruFocus' filter ranking feature selects the Screener filters that have the highest correlation with 12-month stock returns. The green "thumbs up" icon next to a Screener filter indicates that the said filter has a strong correlation with stock returns.

For example, the cash-to-debt ratio, one of several measures of financial strength, has a positive correlation with stock returns with a filter rank of 10. The correlation research suggests that the higher a company's cash-to-debt ratio, the higher the company's stock return.


Caledonia Mining

Caledonia Mining (CMCL) explores for, develops and mines gold primarily in the South Africa and Zimbabwe regions. GuruFocus ranks the company's financial strength 9 out of 10 on several positive investing signs, which include a cash-to-debt ratio above 40, a high Piotroski F-score of 7, a strong Altman Z-score of 7.86 and a Beneish M-score that suggests minimal earnings manipulation.


Jim Simons (Trades, Portfolio)' Renaissance Technologies has a holding in Caledonia Mining.


Humana (HUM) offers Medicare Advantage plans for individuals and groups. GuruFocus ranks the company's financial strength 6 out of 10: Even though equity-to-asset and debt-to-equity ratios languish around the industry-median ratios, Humana has a high Piotroski F-score of 9, a cash-to-debt ratio of 1 and an interest coverage ratio that is near a 10-year high and outperforms over 82% of global competitors.


Gurus with large holdings in Humana include Steve Mandel (Trades, Portfolio)'s Lone Pine Capital and the Vanguard Health Care Fund (Trades, Portfolio).



Jewett-Cameron engages in wholesale distribution of wood, lawn, garden and pet products. GuruFocus ranks the North Plains, Oregon-based company's financial strength 8 out of 10 on several positive investing signs, which include a strong Altman Z-score of 9.24 and cash-to-debt, equity-to-asset and debt-to-equity ratios outperforming over 88% of global competitors.


Worthington Industries

Worthington Industries manufactures value-added steel processing and metal products. GuruFocus ranks the company's financial strength 6 out of 10: The company has an above-average cash-to-debt ratio, a high Piotroski F-score of 7 and a strong Altman Z-score of 3.76 despite equity-to-asset, debt-to-equity and interest coverage ratios underperforming over 66% of global competitors.


Disclosure: No positions.

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