3 Strong Stocks To Consider For Your Future 3 Stocks in excellent financial health to consider for the long haul
This story originally appeared on WallStreetZen
A stock’s financials aren’t the most interesting thing in the world.
But it’s a simple fact: Tracking “boring” financials — analyzing factors like debt, free cash flow, return on assets, and the like — is essential to potentially unlocking long-term gains.
The issue is that most of us simply aren’t equipped to properly digest this information and place it in the proper context. The relatively few can do it face yet another quandary — the process is time-consuming, particularly if you’re comparing equities.
Thankfully, you don’t need to do it all yourself.
WallStreetZen’s screeners can take care of a lot of the legwork. While you’ll still have to put in some elbow grease and do your own research, narrowing down the search at the very start ends up being a huge timesaver more often than not.
If the goal is locating healthy equities with good long-term prospects, start with the Strong Financial Health screener. This list tracks the top equities that score highly for Financials — one of the Component Grades included in a stock’s overall Zen Rating.
At the time of writing, you’ll find 379 stocks on that list — too many to track, so let’s whittle down the list a bit.
To locate the best of the best, I applied a few additional filters:
- First, I filtered the list to only include stocks with an A grade for Financials
- Second, I filtered the list to only include stocks with an overall Zen Rating of A
With those small tweaks, I was left with 35 stocks.
More workable, but still a few too many to research in one go.
So I also filtered by stocks with a Value Component Grade rating of A or B.
The total list? 6 stocks.
Here are what I felt were the strongest 3:
1. CarGurus (NASDAQ: CARG)
This just so happens to be top-rated stock in the Auto & Truck Dealership industry, which has an Industry Rating of A.
CarGurus operates an online marketplace that connects buyers, sellers, and dealerships. Since since its founding in 2005, it has managed to work its way up to a $3.21 billion market capitalization.
On average, analysts are projecting a hefty 17.07% upside for CARG — but stocks with a Zen Rating of A have provided an average annual return of 32.52% in the past two decades. To get a sense of why CarGurus stock could be set to outperform, we need to take a closer look at those Component Grade ratings.
Financials are what we’re primarily after here — in this category, CARG ranks in the top 1% of stocks. In the past year, the company has expanded margins from 4% to 4.3%. It also maintains some $251.97 million in short-term assets — outpacing both short-term liabilities ($94.51 million) and long-term liabilities ($192.56 million).
CarGurus also has $271.41 million in operating cash flow, which is more than enough to service the company’s $195.43 million debt. In addition, earnings of $43.52 million are sufficient to cover the interest payments on the company’s debt.
Once you factor all of this in, the one sore spot in terms of Financials, a debt-to-equity (D/E) ratio of 0.71, starts looking a lot more manageable.
So, what about valuation? At present, CARG is trading at a price-to-earnings (P/E) ratio of 85.42x. For the sake of reference, the industry average is 53.24x, while the market average is 25.95x.
However, P/E is just one metric — when we factor in expected growth through price-to-earnings growth (PEG), which is currently 0.87x, it would appear that CarGurus shares are trading at a discount — at least relative to earnings estimates. Once all is said and done, CARG ranks in the top 14% of stocks in terms of Value.
Then we have Growth — a category in which CarGurus ranks in the 96th percentile of equities. The company’s earnings are forecast to grow at 98.48% per year — blowing the industry average of 31.4% and the wider market average of 15.49% out of the water.
Lastly, I’d be remiss not to reflect on CARG’s longer-term trajectory — the stock has provided 10 earnings beats in a row, so there’s a consistent pattern of outperformance at work here.
2. EverQuote (NASDAQ: EVER)
Our next entry is also an online marketplace — but of an entirely different sort. EverQuote (NASDAQ: EVER) allows customers to shop for auto, home, renters, health, and even life insurance from the comfort of their homes.
Just like our previous entry, EVER has secured a vote of confidence from Wall Street — per the average 12-month price forecast, analysts are implying a 37% upside — and just like CARG, the stock is the top-rated equity in its industry (Internet Content & Information).
EverQuote has recently become profitable — in the last year, profit margins expanded significantly, from -17.4% to 6.6%. While the company is leveraged, with a debt-to-equity D/E ratio of 0.55, that figure is both typical for a tech company in the growth stage, and represents a significant decrease from the 0.76 mark seen just five years ago.
The insurance marketplace maintains $194.34 million in short-term assets — which outpaces the sum of both short-term liabilities ($80.41 million) and long-term liabilities ($2.24 million).
In terms of Financials, it ranks in the top 1% of stocks. However, what truly makes it stand out are high marks in two other categories — Value, where it ranks in the top 6% on account of a P/E ratio of just 22.47x, below both market and industry averages, and Sentiment, where it ranks in the top 7%.
There’s one part of our screener formula that we haven’t mentioned yet — and that’s earnings projections. Analysts are expecting that EverQuote’s earnings will grow at a rate of 17.54% a year — ahead of the Internet Content & Information industry average of 9.4%. Moreover, revenue growth of 11.8% is forecast to surpass the industry average of 5.52% and the market-wide average of 9.79%.
3. Aurinia Pharmaceuticals (NASDAQ: AUPH)
Last but not least, our third entry for today is biotech (commercial stage biotech, mind you) company Aurinia Pharmaceuticals (NASDAQ: AUPH). The business currently has an FDA-approved treatment for lupus, and a promising pipeline geared toward autoimmune conditions.
Since you already know the formula we used to identify today’s picks, the A’s in terms of Zen Rating and the stock’s financials Component Grade rating won’t come as a surprise. What might come as a surprise, however, is performance — AUPH has rallied by 41.94% in the past 365 days.
Here’s the most interesting part — there’s no analyst coverage. Wall Street doesn’t seem to have picked up on AUPH just yet.
Our system has, however. On the whole, Aurinia Pharmaceuticals stock ranks in the top 1% of equities, the top 1% in terms of Financials, the top 6% when it comes to Value, and the top 7% in terms of Sentiment.
Let’s examine why it merits those high marks in order. When it comes to Financials, the high rating is owed to a 48.8% surge in profit margin within the last year (from -32.7% to 16.1%), as well as short-term assets ($405.76 million) exceeding the sum of short-term liabilities ($68.41 million) and long-term liabilities ($86.25 million).
When it comes to Value, we have a decent PE ratio of 28.24x, as well as a very enticing PEG ratio of 0.42x.
Sentiment, however, conceals Aurinia Pharmaceuticals’ most unique bullish signal to consider. When it comes to insider transactions, 77.85% of them in the last year have been buys — and that’s quite a rare sight nowadays.
The company held its latest earnings call on May 12 — and earnings per share (EPS) came in at $0.16, above estimates of $0.08, marking the fifth consecutive beat. Since it isn’t being covered by Wall Street analysts, AUPH is an interesting (and perhaps a tad risky) pick — but there’s no denying that it has solid fundamentals.
—> Interested in more stocks with great Financials? Check out our Strong Financial Health screener.
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