3 High-Return Businesses With Robust Balance Sheets
- By Alberto Abaterusso
Value investors may be interested in the following three stocks, since they represent equities in companies with high profitability and robust financial conditions, as measured by GuruFocus profitability and financial strength ratings of at least 7 out of 10.
Furthermore, Wall Street sell-side analysts have recommended positive ratings for these stocks.
Skyworks Solutions Inc
The first stock that makes the cut is Skyworks Solutions Inc (NASDAQ:SWKS), an Irvine, California-based manufacturer and marketer of semiconductor products in the U.S. and internationally.
GuruFocus rated its financial strength 8 out of 10, driven by an Altman Z-Score of 19.52, indicating the company is in safe zones.
Also, Skyworks has a return on invested capital of 22.1%, which surpasses the weighted average cost of capital of 7.9%, suggesting that the investment is generating a higher return than the cost the company is bearing to raise the capital needed for that investment.
GuruFocus rated its profitability 8 out of 10, driven by a return on capital (ROC) ratio of 41.78% (versus the industry median of 10.07%). The company's ROC ratio ranks higher than 83% of the 837 companies that are operating in the semiconductors industry.
The share price ($156.30 as of Jan. 5) has increased by 32.83% over the past year for a market capitalization of $25.96 billion, a price-earnings ratio of 32.63 (versus the industry median of 32.75), and a price-book ratio of 6.27 (versus the industry median of 2.77).
On Wall Street, the stock has seven strong buy, 15 buy, five hold and only one underperform recommendation rating for an average target price of $161.04 per share.
ZTO Express (Cayman) Inc
The second stock that makes the cut is ZTO Express (Cayman) Inc (NYSE:ZTO), a Shanghai, China-based provider of delivery services for e-commerce and traditional merchants.
GuruFocus rated its financial strength 8 out of 10, driven by an interest coverage ratio of 214.44 as of the most recent quarter. It ranks higher than 95.57% of the 610 companies that operate in the transportation industry.
The ROIC of 13.28% is surpassing the WACC of 6.84%. This indicates that the company's investments are returning more than what it costs to raise the necessary financial resources.
GuruFocus rated its profitability 7 out of 10, driven by a ROC ratio of 45.76% (versus the industry median of 5.53%), ranking 94.61% higher than 891 companies that are operating in the transportation industry.
The share price ($28.82 as of Jan. 5) has climbed 25.3% over the past year for a market capitalization of $24.65 billion, a price-earnings ratio of 29.42 (versus the industry median of 18.6) and a price-book ratio of 3.2 (versus the industry median of 1.21).
On Wall Street, the stock has three strong buys, 10 buys, one underperform and one sell recommendation rating for an average target price of $35.53 per share.
Arista Networks Inc
The third stock that makes the cut is Arista Networks Inc (NYSE:ANET), a Santa Clara, California-based developer, marketer and distributor of cloud networking solutions for North American and international markets.
GuruFocus rated its financial strength 8 out of 10, driven by an Altman Z-Score of 12.32, which means that the company is in safe zones as a result of solid financial conditions.
The ROIC of 54.83% surpasses the WACC of 7.85%, which tells us that the investment is currently yielding back a higher profit than what the investment is costing.
GuruFocus rated its profitability 8 out of 10, driven by a ROC ratio of 238.48% (versus the industry median of 8.9%), ranking 98.88% higher than 2,328 companies that are operating in the hardware industry.
The share price ($286.01 as of Jan. 5) has risen by 39.62% over the past year for a market capitalization of $21.64 billion, a price-earnings ratio of 32.03 (versus the industry median of 25.11) and a price-book ratio of 7.01 (versus the industry median of 1.91).
On Wall Street, the stock has five strong buys, 11 buys and nine hold recommendation ratings for an average target price of $275.64 per share.
Disclosure: I have no positions in any securities mentioned.
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This article first appeared on GuruFocus.
