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.
If the current ratio is higher than 2, it means there is more than enough liquidity to repay short-term creditors. The ratio is calculated as total current assets divided by total current liabilities.
When the working capital substantially exceeds the amount of long-term debt, it means the business is likely well prepared to satisfy any financial obligations arising because of the debt. 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 have positive ratings on Wall Street.
Farfetch
The first stock to consider is Farfetch Ltd. (FTCH, Financial), a London-based operator of an online marketplace for luxury fashion goods in the U.K. and overseas.
The stock has a current ratio of 2.05 versus the industry median of 1.57.
Farfetch has a working capital of approximately $913 million and long-term debt of $530.1 million as of the quarter ended March 30.
GuruFocus assigned a rating of 5 out of 10 to the company's financial strength.
The share price was $8.94 as of early trading on Wednesday for a market capitalization of $3.40 billion and a 52-week range of $6.52 to $47.30.
Wall Street sell-side analysts issued a median recommendation rating of overweight and an average target price of $16.47 per share for the stock.
Morgan Stanley is the company's largest shareholder with 9.75% of all outstanding shares. Baillie Gifford (Trades, Portfolio) is second with 9.13% and T. Rowe Associates Inc. is third with 5.58%.
Enovix
The second stock to consider is Enovix Corp. (ENVX, Financial), a Fremont, California-based company that designs, develops and manufactures lithium-ion batteries.
The stock has a current ratio of 22.79, exceeding the industry median of 1.94.
Enovix has approximately $372 million in working capital as of the quarter ended June 30 and no long-term debt.
GuruFocus assigned a rating of 7 out of 10 to the company's financial strength.
The stock was around $20.99 as of early trading on Wednesday for a market capitalization of $3.29 billion and a 52-week range of $7.26 to $39.48.
Wall Street sell-side analysts issued a median recommendation rating of buy and an average target price of $31 per share for the stock.
Among the company's top fund holders, Eclipse Ventures LLC has the largest position with 11.21% of outstanding shares. Park West Asset Management LLC follows in second with 9.40%, while Vanguard is third with 6.45%.
Huntsman
The third stock to consider is Huntsman Corp. (HUN, Financial), a Woodlands, Texas-based manufacturer and marketer of differentiated organic chemicals.
The stock has a current ratio of 2.12, which is more compelling than the industry median of 1.91.
Huntsman's working capital was $1.82 billion as of the quarter ended June 30. It also has $1.51 billion in long-term debt.
GuruFocus assigned a rating of 7 out of 10 to the company's financial strength.
The stock traded at $30.46 per share as of early trading on Wednesday for a market capitalization of approximately $6.14 billion and a 52-week range of $24.09 to $41.65.
Wall Street sell-side analysts issued a median recommendation rating of overweight and an average target price of approximately $39.63 per share for the stock.
Among the company's top fund holders, Vanguard Group has the largest position with 9.25% of outstanding shares. BlackRock Inc. is second with 6.53% and First Trust Advisors LP is third with 4.26%.
