According to Benjamin Graham's financial strength criterion, if investors screen for stocks whose current ratio is more than 2 and has higher working capital than long-term debt, they should find high-quality companies.
These companies can outperform most of their competitors during any phase of the business cycle.
The current ratio, which is calculated as total current assets divided by total current liabilities, gauges the company's ability to pay short-term financial obligations.
The working capital ratio, which is calculated as total current asset minus total current liabilities, measures the ability of the company to continue to operate its business fluently and fulfill all its financial obligations.
Below are some results of my search. Further, analysts on Wall Street recommend holding the following securities, sustaining expectations for higher share prices.
The first stock is Naspers Ltd. (NPSNY, Financial).
Headquartered in Cape Town, South Africa, the company operates several online platforms, encompassing communication, e-commerce, entertainment and social media. Naspers also operates mobile value-added services and social platforms.
The company has a current ratio of 6.67 as of March 30, which is above the industry median of 1.76.
Naspers’ current ratio is ranked higher than 364 competitors out of a total of 393 companies operating in the online media industry.
Accoridng to GuruFocus, as of March 30, Naspers’ working capital of $8.97 billion is much higher than its total debt of $3.28 billion.
GuruFocus assigned a 6.6 out of 10 rating for the company’s financial strength and a 4 out of 10 rating for its profitability and growth.
Shares of Naspers closed at $29.89 on Friday for a market capitalization of about $47.01 billion. The stock has a price-earnings ratio of 16.44 compared to the industry median of 24.86 and a price-sales ratio of 21.27 versus the industry median of 2.11.
Wall Street recommends buying shares of Naspers with an average target price of $39.39.
The second stock is UniFirst Corp. (UNF, Financial).
Based in Wilmington, Massachusetts, the company provides its North American and European customers with workplace uniforms and protective workwear clothing.
UniFirst has a current ratio of 4.95 as of May 28, which is above the industry median of 1.77.
The current ratio is ranked higher than 659 peers out of a total of 711 companies operating in the manufacturing - apparel and furniture industry.
The GuruFocus chart shows UniFirst had approximately $690 million in working capital and no debt as of May 28.
GuruFocus assigned a rating of 9.6 out of 10 for the company’s financial strength and an 8 out of 10 rating for its profitability and growth.
Shares of UniFirst closed at $195.53 on Friday for a market capitalization of about $3.72 billion. The stock has a price-earnings ratio of 22.37 versus the industry median of 15.61 and a price-sales ratio of 2.13 compared to the industry median of 0.71.
Wall Street recommends holding shares of UniFirst with an average target price of $191.50.
The third stock is Agilent Technologies Inc. (A, Financial).
Based in Santa Clara, California, Agilent Technologies operates in the diagnostics and research industry as a provider of analytical instruments, consumables, services and software.
As of July 30, Agilent Technologies has a current ratio of 2.13, topping 43.01% of total companies operating in the medical diagnostics and research industry. The industry has a median current ratio of 2.38.
Based on the chart below, as of July 30, Agilent Technologies’ working capital of $1.84 billion exceeds total debt of $1.79 billion.
Moreover, GuruFocus assigned a 7.2 out of 10 rating for the company's financial strength and an 8 out of 10 rating for its profitability and growth.
Shares of Agilent closed at $76.39 on Friday for a market capitalization of $23.64 billion. The stock has a price-earnings ratio of 22.8 versus the industry median of 31.4 and a price-sales ratio of 4.81 compared to the industry median of 3.74.
Wall Street issued an overweight recommendation rating for shares of Agilent Technologies with an average target price of $82.77. The rating means the stock is expected to outperform either the industry or the entire market within a year.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- 3 Companies With High Earnings Yields
- A Trio of Long-Term Dividend Payers With High Forward Yields
- 3 Companies With a Compelling Price-Book Ratio
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