In light of a volatile U.S. stock market, three stocks with the financial strength to weather the storm are Jack Henry & Associates Inc. (JKHY, Financial), Starbucks Corp. (SBUX, Financial) and The Toro Co. (TTC, Financial), according to the “Good Companies” screener.
The “Good Companies” screener identifies companies that meet the following criteria:
- GuruFocus Predictability rank of at least two stars.
- 10-year median return on capital of at least 14%.
- 10-year median operating margin of at least 10%.
- A positive five-year operating margin growth rate.
- 10 years of profitability.
- 10-year revenue growth rate between 8% and 20%.
- 10-year earnings growth rate between 10% and 20%.
U.S. markets remain volatile in October
The Dow closed 127 points lower on Monday, led by losses in banks such as Goldman Sachs Group Inc. (GS, Financial) and Bank of America Corp. (BAC, Financial), two of Warren Buffett (Trades, Portfolio)’s major bank holdings. Banks closed lower amid fears that “higher mortgage rates would cap loan growth,” according to CNBC columnist Fred Imbert.
On Oct. 11, the CBOE volatility index peaked at 24.98 as the U.S. 10-year Treasury rate reached a seven-year high, sending the Dow lower by 800 points that day.
Jack Henry & Associates
Monett, Missouri-based Jack Henry & Associates provides processing transactions and automating business solutions for community banks through three primary brands: Jack Henry Banking, Symitar and ProfitStars. The company reported revenues of $1,536.6 million and net income of $376.7 million for the 12 months ending June 30. According to GuruFocus, the company’s three-year revenue growth rate of 8.8% outperforms 70% of global competitors. It also gives Jack Henry a business predictability rank of five stars, suggesting strong and consistent revenue and earnings growth over the past 10 years.
GuruFocus ranks Jack Henry’s financial strength 8 out of 10 on several positive investing signs, which include robust interest coverage of 203.37 and a debt-to-EBITDA ratio of 0.19. The latter outperforms 89% of global competitors, suggesting safe leverage levels. Additionally, Jack Henry’s Altman Z-score is a strong 11.79, driven primarily by a market cap to total liabilities ratio of 15.2506.
Gurus with large holdings in Jack Henry include Chuck Royce (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).
Starbucks
Seattle-based Starbucks sells various food and drink products, ranging from coffee, espresso and tea to pastries. GuruFocus ranks the company’s financial strength 7 out of 10 on several positive investing signs, which include interest coverage of 29.73 and a debt-to-EBITDA ratio of 0.92. Starbucks’ Altman Z-score is a solid 6.54 primarily due to a robust market cap to total liabilities ratio and a high retained earnings to total assets ratio.
GuruFocus ranks Starbucks’ profitability 8 out of 10 as net profit margins, returns on equity and returns on assets outperform over 95% of global competitors. The coffee roaster’s return on invested capital is significantly higher than its weighted average return on capital, suggesting strong value creation.
Parnassus Fund manager Jerome Dodson (Trades, Portfolio) owns 479,313 shares of Starbucks as of the third quarter. Other gurus that have invested in Starbucks over the past six months include Tom Gayner (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)’s Bridgewater Associates.
The Toro Co.
Bloomington, Minnesota-based Toro designs, manufactures and markets professional turf maintenance equipment and services. The company reported net revenues of $655.8 million for the quarter ending Aug. 3, driven by strong residential segment sales growth of 9.5%. CEO Richard Olsen said “strong demand for [the company’s] walk power and zero-turn mowers” boosted sales in the company’s residential business, which “rebounded nicely after the slow start to spring.” The strong revenues contribute to a three-year growth rate of 6.10%, which outperforms 65% of global competitors.
GuruFocus ranks Toro’s financial strength 7 out of 10 primarily due to a strong Altman Z-score of 7.40. The company’s debt-to-EBITDA ratio of 0.69 outperforms 77% of global competitors, suggesting good and safe financial leverage.
Disclosure: No positions.
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