Benjamin Graham's financial strength criterion indicate that if investors screen for companies whose current ratio is more than 2 and have more working capital than long-term debt, their search should result in high-quality holdings to either add to or increase in their portfolios.
The current ratio indicates whether the balance sheet provides the company with sufficient margins to pay off its short-term creditors. It is calculated using total current assets divided by total current liabilities.
A working capital that exceeds long-term debt signals that the balance sheet stands on solid financial pillars for the company to continue to run its activities fluently and reimburse all its financial obligations.
Below are some results of my search. Further, analysts on Wall Street recommend a rating of hold to overweight for the following securities, underpinning expectations for higher share prices.
Tiffany
The first stock is Tiffany & Co. (TIF, Financial). Headquartered in New York, the company is a designer, producer and retailer of jewelry and other items in the Americas and internationally.
The company has a current ratio of 4.22 as of July 31, which tops the industry median of 1.46.
Tiffany’s current ratio is ranked higher than 879 peers out of a total of 977 companies operating in the Retail - Cyclical industry.
According to GuruFocus, as of Jan. 28, Tiffany’s trailing 12-month working capital of $3.08 billion is much higher than its total long-term debt of $883.4 million.
GuruFocus assigned a positive 6 out of 10 rating for the company’s financial strength and a high 8 out of 10 rating for its profitability.
Shares of Tiffany closed at $125.67 on Friday for a market capitalization of $15.18 billion. The stock has a price-earnings ratio of 27.37 versus the industry median of 16.92 and a price-sales ratio of 3.5 versus the industry median of 0.55.
Wall Street recommends an overweight rating for shares of Tiffany with an average target price of $121.72. The rating indicates the stock is expected to outperform either the industry or the entire market within a year.
Bruker
The second stock is Bruker Corp. (BRKR, Financial). Based in Billerica, Massachusetts, the company is a producer and distributor of scientific instruments and solutions in the U.S. and internationally.
Bruker has a current ratio of 2.23 as of Sept. 30, which is above the industry median of 2.39.
The current ratio is ranked higher than 287 peers out of a total of 610 companies operating in the Medical Devices & Instruments industry.
The GuruFocus chart shows that Bruker had approximately $705 million in its trailing 12-month working capital and $322.6 million in long-term debt as of Dec. 30, 2018.
GuruFocus assigned a positive rating of 6 out of 10 for the company’s financial strength and a high 8 out of 10 rating for its profitability.
Shares of Bruker closed at $47.9 on Friday for a market capitalization of $7.38 billion. The stock has a price-earnings ratio of 36.31 compared to the industry median of 30.11 and a price-sales ratio of 3.71 versus the industry median of 3.35.
Wall Street recommends an overweight rating for shares of Bruker with an average target price of $51.18.
Kaman
The third stock is Kaman Corp. (KAMN, Financial). Based in Bloomfield, Connecticut, the company operates in the Aerospace & Defense industry.
As of Sept. 27, Kaman has a current ratio of 3.99 versus the industry median of 1.48. Kaman is topping 203 out of a total of 230 companies operating in the Aerospace & Defense industry in terms of a better current ratio.
Based on the chart below, as of Dec. 28, 2018, Kaman’s trailing 12-month working capital of $474.63 million exceeds long-term debt of $284.26 million.
Moreover, GuruFocus assigned a moderate rating of 5 out of 10 for the company's financial strength and a positive rating of 6 out of 10 for its profitability.
Shares of Kaman closed at $64.64 price on Friday for a market capitalization of $1.8 billion. The stock has a price-earnings ratio of 9.36 versus the industry median of 22.69 and a price-sales ratio of 0.84 compared to the industry median of 1.35.
Wall Street issued a hold recommendation rating for shares of Kaman with an average target price of $66.75.
Disclosure: I have no positions in any securities mentioned.
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