The term “solid” isn’t very descriptive about the characteristics of the stocks on this list but it is a statement about the type of companies that are on the list. A “solid” company is a company that is generally managed well, has a healthy balance sheet, and has a stable to rising share price. While individually they may not be a pure growth, value or income stock, frequently, they exhibit qualities of more than one these fundamental classifications. Here are five solid companies that are in a good position to buy today for future gains.
The term “solid” isn’t very descriptive about the characteristics of the stocks on this list but it is a statement about the type of companies that are on the list. A “solid” company is a company that is generally managed well, has a healthy balance sheet, and has a stable to rising share price. While individually they may not be a pure growth, value or income stock, frequently, they exhibit qualities of more than one these fundamental classifications. Here are five solid companies that are in a good position to buy today for future gains.
As you begin to analyze a company as a potential investment, it’s good to know what fundamental stock type it is. There are essentially three types of stocks: growth, value and income.
A growth stock is a company that is expected to grow its earnings at a high level in the future and likely has also grown its earnings at a high rate in the past. Typically, the company has high gross and net profit margins with high return on equity.
A value stock is a company that is trading at a discount to its projected value. Typically, the company has low price-to-book (P/B), price-to-earnings (P/E), price-to-sales (P/S) and enterprise value to EBITDA (EV/EBITDA). Some value investors will calculate the present value of the company using future expected cash flows.
An income stock is a company that pays a relatively high dividend that is higher than the S&P 500 (around 2%). These companies generate high levels of free cash flow (FCF) and frequently repurchase shares of their own stock.
As you consider companies for investment, considerations for debt and cash levels are always a good consideration. While there’s no guarantee that the stock will go up, in this environment, it’s something that may be rewarded or at least not penalized.
The following four companies have solid balance sheets and generally fit in more than one category whether growth, value or income.
Solid Stock #1: Renewable Energy Group Inc (NASDAQ: REGI)
REGI is an oil & Gas company that converts natural fats, oils, and greases into biofuel. One man’s cooking oil is another woman’s diesel fuel. The company has relatively low debt levels with a debt-to-equity of 0.09 and a cash-to-debt ratio of 3.2. The company is trading at a reasonable value with a P/B ratio of 3.88 and a P/S ratio of 0.68 and an EV/EBIT of 2.31.
The stock has outperformed the S&P 500 significantly in the past week and closed at an all-time high while breaking a long-term resistance last Friday.
Solid Stock #2: Federated Hermes Inc (NYSE: FHI)
FHI is an asset management company that invests in a diversified portfolio of assets for individuals and institutions. The company generates a high level of return on equity at 28.72 with only a debt-to-equity of 0.19. They have a cash-to-debt ratio of 1.79 and is trading near 10-year lows for most of its valuation ratio. They are also trading at a 41% discount to its intrinsic value using a discounted cash flow model.
The price is currently testing its resistance near $27. A breakout above this level is an indication the price will have the potential to test its 52-week high near $38.
Solid Stock #3: Kimball International Inc (NASDAQ: KBAL)
KBAL is an office furniture company that supplies federal, state, and local government offices. The company has relatively low debt with a debt-to-equity of 0.09 and a cash-to-debt ratio of 4.49. The company also has plenty of liquidity with an interest coverage ratio of 795.9. At its current price, the value is compelling, and it has a 5-year projected growth rate of 17%.
The price has made a nice run since early last week and is testing resistance near $12.75. A breakout above this level is an indication the price may run to $16.73 in the near term.
Solid Stock #4: ITT Inc (NYSE: ITT)
ITT manufactures engineered critical and customized technology solutions for the energy, transportation and industrial markets. The company has grown its earnings by 21.8% a year over the past three years and grown its revenues by 6.3%. The current 5-year projected EPS growth rate is -2.00%, but the company has a history of beating analyst estimates in the past four quarters. The most recent announcement, they beat estimates by 50% and sparked upward revisions to the upcoming quarters and fiscal years.
The share price broke a resistance level near $60.50 and is testing its June high. The move has the price pointing toward the price testing the 52-week high near $76.