Benjamin Graham, the father of value investing, suggested investors search for stocks that have a current ratio of over 2 and more working capital than long-term debt.
When the current ratio is higher than 2, the company has produced sufficient liquidity to pay back its short-term creditors. The ratio is calculated by dividing the total current assets by the total current liabilities.
When the working capital exceeds the long-term debt by a wide margin, it means that the business will likely not miss fulfilling any of its long-term debt 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.
Alibaba Group Holding Ltd
The first stock that makes the cut is Alibaba Group Holding Ltd (BABA, Financial), a Chinese internet retail giant.
The stock has a current ratio of 1.99, which appeals more than the industry median of 1.47.
Alibaba Group Holding Ltd has trailing 12-month working capital of about $31.487 billion and long-term debt of about $17.132 billion as of the most recent fiscal year.
GuruFocus assigned a rating of 7 out of 10 for the company's financial strength and a rating of 9 out of 10 for its profitability.
The share price closed at $242.98 on Thursday for a market capitalization of $657.42 billion and a 52-week range of $169.95 to $319.32.
Wall Street sell-side analysts recommend 18 strong buys, 29 buys and one hold rating for the stock. The average target price is $324.80 per share.
Intuit Inc
The second stock that makes the cut is Intuit Inc (INTU, Financial), a Mountain View, California-based business and financial software company.
The stock has a current ratio of 3.09, which is more compelling than the industry median of 1.9.
Intuit has trailing 12-month working capital of about $1.628 billion, which exceeds the long-term debt of $386 million as of the most recent fiscal year.
GuruFocus assigned a rating of 7 out of 10 for the company's financial strength and a rating of 8 out of 10 for its profitability.
The stock closed at $365.51 on Thursday for a market capitalization of $100.17 billion and a 52-week range of $187.68 to $387.94.
Wall Street sell-side analysts recommend six strong buys, three buys, 11 holds and two underperform ratings for the stock. The average target price is $410.72 per share.
KE Holdings Inc
The third stock that makes the cut is KE Holdings Inc (BEKE, Financial), a Beijing, China-based operator of an online platform for housing transactions and services in China.
The stock has a current ratio of 2.39, which appeals more than the industry median of 1.72.
KE Holdings Inc has trailing 12-month working capital of $3.438 billion and long-term debt of $698 million as of the most recent fiscal year.
GuruFocus assigned a rating of 6 out of 10 for the company's financial strength.
The stock closed at $62.54 on Thursday for a market capitalization of $73.72 billion and a 52-week range of $31.79 to $79.40.
Wall Street sell-side analysts recommend three buys, five holds and one underperform rating for the stock for an average target price of $65.77 per share.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- A Trio of Strong Performers to Consider
- 3 Graham-Style Stocks for the Value Investor
- 2 Underperforming Holdings to Ease Up On
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