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A Trio of High-Quality Picks for the Value Investor

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GuruFocus.com
·3 min read
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- By Alberto Abaterusso

Benjamin Graham, the pioneer of value investing, recommended to screen the market for stocks that have a current ratio of more than 2 and more working capital than long-term debt.

When the current ratio is higher than 2, the company has managed to produce enough liquidity to pay back its short-term creditors. The ratio is calculated as total current assets divided by total current liabilities.


When the working capital exceeds the long-term debt significantly, it means that the business will likely be able to keep up with its long-term debt obligations. The working capital is the difference between total current assets and total current liabilities.

Thus, investors may want to consider the following stocks, as they meet the above criteria.

Shopify Inc

The first stock that qualifies is Shopify Inc (NYSE:SHOP), an Ottawa, Canada-based provider of a cloud-based multi-channel commerce platform for small and mid-sized companies.

The stock has a current ratio of 15.69, which is more appealing than the industry median of 1.92.

Shopify Inc has a trailing 12-month working capital of about $6.44 billion and long-term debt of about $758 million as of the most recent fiscal year.

A Trio of High-Quality Picks for the Value Investor
A Trio of High-Quality Picks for the Value Investor

GuruFocus assigned a rating of 7 out of 10 for the company's financial strength and a rating of 8 out of 10 for its profitability.

The share price traded at $1,159.47 at close on Wednesday for a market capitalization of $142.71 billion and a 52-week range of $369.3 to $1,499.75.

Wall Street sell-side analysts recommend a median rating of overweight and an average target price of $1,471.10 per share for the stock.

Applied Materials Inc

The second stock that holds the criteria is Applied Materials Inc (NASDAQ:AMAT), a Santa Clara, California-based supplier of manufacturing equipment, services and software to semiconductor producers.

The stock has a current ratio of 3.17, which appeals more than the industry median of 2.36.

Applied Materials Inc has a trailing 12-month working capital of about $8.91 billion, which stands higher than the long-term debt of $5.45 billion as of the most recent fiscal year.

A Trio of High-Quality Picks for the Value Investor
A Trio of High-Quality Picks for the Value Investor

GuruFocus assigned a rating of 7 out of 10 for the company's financial strength and a rating of 9 out of 10 for its profitability.

The stock traded at $139.14 at close on Wednesday for a market capitalization of $127.68 billion and a 52-week range of $44.64 to $146.

Wall Street sell-side analysts recommend a median rating of buy and an average target price of $154.52 per share for the stock.

Zoom Video Communications Inc

The third stock that makes the cut is Zoom Video Communications Inc (NASDAQ:ZM), a San Jose, California-based provider of a platform for video-first communication services worldwide.

The stock has a current ratio of 3.80, which is more appealing than the industry median of 1.11.

Zoom Video Communications Inc has a trailing 12-month working capital of $3.53 billion and no long-term debt as of the most recent fiscal year.

A Trio of High-Quality Picks for the Value Investor
A Trio of High-Quality Picks for the Value Investor

GuruFocus assigned a rating of 8 out of 10 for the company's financial strength and a rating of 3 out of 10 for its profitability.

The stock closed at $323.08 on Wednesday for a market capitalization of $94.89 billion and a 52-week range of $108.53 to $588.84.

Wall Street sell-side analysts recommend a median rating of overweight and an average target price of $477.22 per share for the stock.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.