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4 Stocks With Solid Financial Strength

These companies match key criteria of Benjamin Graham

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Nov 24, 2021
Summary
  • NIO Inc, STMicroelectronics NV, Copart Inc and Monolithic Power Systems Inc have strong balance sheets.
  • They seem strong enough to ward off bankruptcy risk in the short, medium and long-term.
  • Wall Street also likes these stocks.
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Benjamin Graham, the father of value investing, recommended investors look for stocks that have a current ratio higher than 2 and more working capital than long-term debt.

When the current ratio is higher than 2, it means that there is more than enough liquidity to pay back short-term creditors. The ratio is calculated as total current assets divided by total current liabilities.

When the working capital substantially exceeds the long-term debt, it means that the business is probably well prepared to satisfy any financial obligations arising because of long-term debt. The working capital is the difference between total current assets and total current liabilities.

Thus, investors may want to consider the following stocks, since they meet the above criteria and are recommended by Wall Street.

NIO Inc

The first stock to consider is NIO Inc (

NIO, Financial), a Shanghai, China-based manufacturer of electric vehicles in China, Hong Kong, the United Kingdom and Germany.

The stock has a current ratio of 2.04 versus the industry median of 1.56.

NIO Inc has a trailing 12-month working capital of about $4.3 billion and long-term debt of about $1.8 billion as of the most recent quarter ended on Sept. 30.

GuruFocus assigned a rating of 5 out of 10 to the company's financial strength.

The share price was $42.04 at close on Tuesday for a market capitalization of $66.87 billion and a 52-week range of $30.71 to $66.99.

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Wall Street sell-side analysts issued a median recommendation rating of buy and an average target price of about $378.81 per share for the stock.

STMicroelectronics NV

The second stock to consider is STMicroelectronics NV (

STM, Financial), a Swiss multinational producer of semiconductors.

The stock has a current ratio of 2.67, exceeding the industry median of 2.41.

STMicroelectronics NV has a trailing 12-month working capital of about $4.8 billion and long-term debt of $2.6 billion as of the most recent quarter ended on Sept. 30.

GuruFocus assigned a rating of 7 out of 10 to the company's financial strength.

The stock closed around $49.84 on Tuesday for a market capitalization of $44.76 billion and a 52-week range of $33.30 to $52.15.

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Wall Street sell-side analysts issued a median recommendation rating of overweight and an average target price of $55.48 per share for the stock.

Copart Inc

The third stock to consider is Copart Inc (

CPRT, Financial), a Dallas, Texas-based online provider of auctions and vehicle remarketing services to its clients in North America and internationally.

The stock has a current ratio of 4.15, which is more compelling than the industry median of 1.68.

Copart Inc has a trailing 12-month working capital of nearly $1.55 billion versus $510 million in long-term debt as of the most recent fiscal quarter ended on Oct. 30.

GuruFocus assigned a rating of 7 out of 10 to the company's financial strength.

The stock closed at $148.46 per share on Tuesday for a market capitalization of $35.21 billion and a 52-week range of $101.92 to $161.12.

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Wall Street sell-side analysts issued a median recommendation rating of overweight and an average target price of $169.56 per share for the stock.

Monolithic Power Systems Inc

The fourth stock to consider is Monolithic Power Systems Inc. (

MPWR, Financial), a Kirkland, Washington-based semiconductors company serving several markets in the U.S. and globally, including communications and consumer applications markets as well as automotive, computing, storage and industrial.

The stock has a current ratio of 4.68 versus the industry median of 2.41.

Monolithic Power Systems has a trailing 12-month working capital of about $837 million versus long-term debt of $3.4 million as of the most recent quarter ended on Sept. 30.

GuruFocus assigned a rating of 7 out of 10 to the company's financial strength.

The stock traded around $545.84 at close on Tuesday for a market capitalization of $25.16 billion and a 52-week range of $300.55 to $580.

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Wall Street sell-side analysts issued a median recommendation rating of overweight and an average target price of $603.29 per share for the stock.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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