Finding Your Way Through the Wall Street Maze
Fani is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Discovering the next compelling candidate for a stock portfolio is not an easy task to fulfill. The financial world contains an unimaginably large number of data and investing tools. In order to extract wisdom out of them, investors often have to keep their nose to the grindstone. However, stock screeners can take some burden off investors' shoulders and provide them with intriguing investment opportunities in the blink of an eye.
Seeking for an investment opportunity
With that in mind, I decided to use the Motley Fool CAPS community's screener to narrow down the universe of stocks based on five key criteria:
Five-star rated stocks. The aggregate intelligence of thousands of participants in the CAPS community can be a helpful indicator of high-quality stocks.
A market capitalization of at least $1 billion. This includes mid-sized companies, which have deeper pockets for weathering difficulties compared to small ones, and greater flexibility in growing earnings than large businesses.
3-year revenue growth of more than 10%. Without sound top line growth, enjoying sustainable bottom line growth is a tough nut to crack.
Gross margin greater than 20%. Gross margins reflect the ability to turn revenue into profits and indicate how efficient a company is at the most fundamental level.
Current ratio of at least 2, which implies that the company is perfectly capable of meeting short-term debt obligations.
Here are a few companies that showed up on my screen:
Skyworks Solutions (NASDAQ: SWKS)
Mobile chip maker Skyworks scores a 3-year top line growth of around 25% and a gross margin of nearly 43%. The company's balance sheet is clean as a whistle. It has no debt and a cash position sturdy enough to encourage an aggressive growth strategy.
Skyworks' key strengths lie in its global reach and its engagement with a diverse set of top-tier customers, such as Google, Cisco, and Apple. It is a market leader in meeting the needs of all major handset manufacturers and smartphone providers. Moreover, its broad front-end module and precision analog product portfolio enables it to address a slew of markets, including automotive, military, and medical.
The company's future looks bright, despite the competitive forces that shape today's semiconductors industry. Skyworks is well positioned to benefit from an increasingly connected wireless world. EPS over the next five years is expected to reach double digit growth rates. Also, analysts' average target price signals an at least 40% appreciation potential.
Raven Industries (NASDAQ: RAVN)
Founded in 1956, Raven Industries is a diversified technology company. It offers custom solutions for the precision agriculture, high performance specialty films, aerospace, and electronic manufacturing services markets.
The company's business model serves as a platform for success. Raven Industries operates within a set of diversified and fundamentally strong market segments. This way, it ensures a balanced revenue stream, which bolsters risk mitigation. Most importantly, it consistently invests in money-making technological innovations that give the company an edge over its peers.
Over the past three years, the company's earnings have been growing at a nice clip along with its sales. Thus, it handily manages a gross margin greater that 30%. Its current ratio crushes the industry's median, and its $48 million worth of cash and cash equivalents acts as a safety cushion for turbulent times. Overall, with 3-year stock returns standing at over 70% and steadily increasing cash distributions, Raven Industries could be a stock for the long haul.
At the moment, it is trading about 25% off of its 52-week range of $33.47, and a price-to-earnings ratio slightly below its 10-year average of 21. The current dividend yield of 1.50% might look insignificant, but the company has been increasing its dividends for 26 consecutive years. Also, the relatively healthy payout ratio of 41% suggests that there is room for dividend growth in the future.
National Oilwell Varco (NYSE: NOV)
National Oilwell Varco is a worldwide leader in supplying all the equipment necessary for oil and gas drillers to operate, and perhaps the safest bet in the energy sector.
The company outshines its peers in terms of market penetration, as its equipment can be found on roughly 90% of the world's oil rigs. At the same time, its immense $12 billion backlog in the Rig Technology segment-its most profitable business- underlies the strong demand prospects for its key products. It is worth mentioning that, between 2010 and 2012, rig technology orders almost tripled, reaching more than $9 billion.
Overall, National Oilwell Varco seems to hold all the aces: juicy 3-year stock returns greater than 50%, robust annual top and bottom line growth, and a gross margin higher than 30%. Also, the company's strong balance sheet provides a quick glimpse of its ability to pay its bills; its current assets far exceed its current liabilities, and its long-term debt remains perfectly manageable.
Finally, with a price-to-earnings ratio way lower than the industry's average same ratio of 18.8, it seems fetchingly priced. Analysts tracked by Wall Street Journal take a bullish stance on the stock, with the majority of them giving it a “buy” rating. The average target price of $85.32 shows a more than 25% upside potential.
Do-it-yourself investors can find their way through the Wall Street maze just by employing a simple stock screener. Setting the right criteria will save you a whole lot of time while searching for a stock that fits your portfolio.
All of the above mentioned companies that resulted from my recent test make a case for a possible investment opportunity. Overall, clean balance sheets, nifty revenue and earnings growth performance, and hefty gross margins paint a pretty lucrative picture.
FaniKel has no position in any stocks mentioned. The Motley Fool recommends National Oilwell Varco. The Motley Fool owns shares of National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!