A Trio of Stocks to Enhance the Quality of Your Portfolio
To have more of a chance to uncover high-quality companies, Benjamin Graham, the father of value investing, recommended picking stocks with a current ratio of more than two and higher working capital than long-term debt.
The current ratio indicates whether the balance sheet provides the company with sufficient margins to reimburse its short-term creditors. The ratio is a quotient where total current assets are the numerator and total current liabilities are the denominator.
When the difference between total current assets and total current liabilities (aka working capital) is higher than the long-term debt, then the balance sheet of the company is considered robust, as resources are enough to pay long-term debt.
In additon to meeting the above criteria, these three stocks also have positive ratings from sell-side analysts on Wall Street.
Xilinx
Xilinx Inc (NASDAQ:XLNX) is based in San Jose, California. The company is active in the world's semiconductors industry as a designer and developer of programmable devices and related technologies.
Xilinx has a current ratio of 6.44, which is higher than the industry median of 2.26.
Xilinx has a trailing 12-month working capital of $3.4 billion and trailing 12-month long-term debt of almost $1.2 billion as of the last full fiscal year ended on March 29, 2019.
GuruFocus assigned a positive rating of 7 out of 10 for the company's financial strength and a high rating of 9 out of 10 for its profitability.
Shares of Xilinx traded at a price of $101.36 per unit on Jan. 16 for a market capitalization of $25.49 billion.
According to the Peter Lynch chart, the stock is not cheap.
Wall Street issued an overweight recommendation rating and an average target price of $108.70.
Moog
Moog Inc. (NYSE:MOG.A) was the second company I found with the above-listed criteria. Based in East Aurora, New York, the company provides original equipment manufacturers and end-users in the aerospace, defense and industrial markets with precision motion and fluid controls and systems.
The stock has a current ratio of 2.24, which is higher than the industry median of 1.48..
Moog has a trailing 12-month working capital of $901 million and trailing 12-month long-term debt of $833 million as of the most recent quarter ended on Sep. 27, 2019.
GuruFocus assigned a positive rating of 5 out of 10 for the company's financial strength and a high rating of 8 out of 10 for its profitability.
This stock traded at a price of $92.37 per share at close on Thursday for a market capitalization of $3.37 billion.
According to the Peter Lynch chart, the stock doesn't appear to trade far from its fair value.
Wall Street recommends an overweight rating and an average target price of $99.75.
InterDigital
InterDigital Inc (NASDAQ:IDCC) was the third company I found. Based in Wilmington, Delaware, the company is a designer and provider of technologies that enable and enhance wireless communications.
InterDigital has a current ratio of 3.0, which is higher than the industry median of 1.06.
InterDigital' trailing 12-month working capital was $845 million and its trailing 12-month long-term debt was $317.4 million as of the last full fiscal year ended on Dec. 30, 2018.
GuruFocus assigned a positive rating of 5 out of 10 for the company's financial strength and a high rating of 8 out of 10 for its profitability.
Shares of InterDigital Inc were trading at a price of $59.59 per unit at close on Thursday for a market capitalization of $1.86 billion.
According to the Peter Lynch chart, the stock is not cheap.
Wall Street issued a buy recommendation rating and an average target share price of $94.60.
Disclosure: I have no positions in any securities mentioned.
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This article first appeared on GuruFocus.
