Zacks Investment Ideas feature highlights: Alexion Pharmaceuticals, Skyworks
Solutions and Oracle
CHICAGO, Feb. 12, 2014
CHICAGO, Feb. 12, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature
highlights Features: Alexion Pharmaceuticals, Inc. (Nasdaq:ALXN-Free Report),
Skyworks Solutions Inc. (Nasdaq:SWKS-Free Report) and Oracle Corporation
Scared to Invest? Try 3 Crisis-Proof Liquid Stocks
Are you hesitant to invest in stocks amid the ongoing financial instability
and Federal Reserve's stimulus cut? Actually you should be, given the
downtrend in major U.S. indices so far this year. You will, after all, be
putting your hard-earned money at risk.
But you can turn the odds in your favor by applying the right stock-picking
strategy. All you have to do is take advantage of the short-term turning
points of stocks that have the capability of tiding over possible challenges.
Before I discuss the strategy and handpick potential winners, let us take a
quick look at the stock market and its looming threats.
Is the Magnitude of Market Correction Reasonable?
It is believed that no clear direction of job data, barely increased
manufacturing, uncertainty related to home and auto sales, and the latest
upheaval in emerging countries have made the benchmark indexes lose strength.
While these are no doubt enough to fade investors' bullish sentiment, the
over-hyped magnitude of market correction is far more than what might be
Actually, the economic data was not as strong as people expected based on last
year's progress. So a reassessment of individual risk profile is keeping them
away from the market for now.
Is Liquidity Management a Concern?
At least, the Fed's aggressive stance to reduce its stimulus signals a better
overall economic picture. While this should translate into better investor
sentiment, some negative factors cannot be ignored.
The reduction of money supply will enhance the buying power of each dollar and
eventually translate into deflation. This will in turn have a reverse effect
on economic growth with the flight of real interest rates. Further, failure on
part of the economy to sustain the achieved growth level or the Fed in
reaching growth targets will result in another liquidity crisis. And the
outcome of a crisis is still fresh in our memories.
Otherwise, the U.S. economy should not suffer much, as the outflow of
liquidity to emerging markets returns with increased demand for money as a
result of the Fed's scaling back of stimulus. The withdrawal of capital to
meet domestic demand has already started hindering growth in emerging markets.
On the other hand, the debt ceiling issue has resurfaced: the Treasury needs
to raise the limit by the end of this month so as to forestall the risk of
The fate of the economy and the stock market is highly dependent on the Fed's
successful liquidity management. If the stimulus is withdrawn before the
economy effectively recovers, another crisis will be right around the corner.
It all depends on the perspective of the new Fed chief Janet Yellen. She will
perhaps tone down the aggressive stance given the lukewarm data. The
semi-annual monetary policy will give a clearer understanding of her
Meanwhile, the debt-ceiling standoff is expected to be another troublemaker.
So it's time to start making investment decisions considering the worst-case
scenario. Keeping the likely negatives in mind, one should look for stocks
that have the following features:
High Liquidity: This is the first thing to check, as companies that are quite
capable of covering their short-term obligations will not falter even if the
economy faces a liquidity shortage. So companies with a high current ratio
should fare well, even if their profits get hurt.
Low Financial Leverage: Companies that depend less on external borrowings for
capital expenditures should be safer choices, as the chance of a debt crunch
cannot be ruled out. So you should narrow down your list by finding companies
that have very small debt-to-equity ratios.
Ability to Utilize Equity and Assets: Highly liquid and low leveraged
companies that can effectively utilize their assets and employed investor
money to generate earnings should remain buoyant despite external financial
threats. So you should add high return on assets (ROA) and return on equity
(ROE) to your screening criteria.
Reinvestment Ability: Earnings power is another important measure in this
strategy. Companies that are able to generate higher profits on each dollar of
sale should have the flexibility to reinvest in their operations. So a healthy
operating margin is necessary to reduce dependence on external borrowing.
Favorable Zacks Rank: Stocks that hold a Zacks Rank #1 (Strong Buy) or 2 (Buy)
have witnessed solid positive earnings estimate revisions over the past few
weeks. A favorable rank indicates that analysts are optimistic about the
earnings picture of these companies despite potential challenges. This should
finally help you to zero-in on the right stocks.
(Click here to learn more about the Zacks Rank.)
3 Stocks Set to Gain Amid Liquidity Crunch
I ran a screen on Research Wizard with the following parameters:
(Click here to sign up for a free trial to the Research Wizard today.)
oCurrent ratio greater than or equal to 3: This will select companies that
are 3 times more capable to cover short-term obligations.
oDebt-to-equity ratio less than or equal to 1%: This captures stocks that
have a low degree of financial leverage.
oROA and ROE greater than or equal to 15%: This picks stocks that are
generating over 15% earnings by utilizing their equity base and asset base
oOperating margin greater than or equal to 20%: This identifies stocks that
have the flexibility to reinvest their pure profits, as their costs are
oZacks Rank less than or equal to 2: This ascertains stocks that have been
witnessing solid earnings estimate revisions and are poised to outperform.
(See the performance of Zacks' portfolios and strategies here: About Zacks
Here are the top 3 among the 5 stocks that I could extract from the screen:
Alexion Pharmaceuticals, Inc. (Nasdaq:ALXN-Free Report): Headquartered in
Cheshire, Connecticut, this Zacks Rank #1 biopharmaceutical company is my top
Current ratio = 3.75
Debt-to-equity ratio = 0.03%
Trailing 12-month ROA = 18.47%
Trailing 12-month ROE = 24.25%
Operating margin (Trailing 12 months) = 35.32%
Skyworks Solutions Inc. (Nasdaq:SWKS-Free Report): This provider of analog
semiconductors is my second choice. The company is headquartered in Woburn,
Massachusetts and currently carries a Zacks Rank #2.
Current ratio = 7.12
Debt-to-equity ratio = 0.02%
Trailing 12-month ROA = 16.15%
Trailing 12-month ROE = 17.88%
Operating margin (Trailing 12 months) = 20.16%
Oracle Corporation (NYSE:ORCL-Free Report): This well-known database and
application software maker is my third choice. This Redwood City,
California-based tech database giant currently holds a Zacks Rank #2.
Current ratio = 3.38
Debt-to-equity ratio = 0.51%
Trailing 12-month ROA = 15.16%
Trailing 12-month ROE = 28.52%
Operating margin (Trailing 12 months) = 33.61%
Don't Miss Good Entry Points
None of my screening parameters is dependent on the price performance of these
stocks. So you should add them to your watch list first and wait for good
entry points, as these fundamentals will not change any time soon. In any
case, these stocks will be better performers given their funding self
However, take action before these strengths are reflected in the stock prices.
Don't wait too long!
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