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Markets & Finance

High-Margin, Low-Debt Stocks

Standard & Poor's latest stock screen finds three companies with strong financial performance and very low leverage

From Standard & Poor's Equity ResearchIn times of market uncertainty, investors may wish to look at stocks that exhibit strength in some key measures of financial performance.

One metric is a company's gross profit margin, which expresses in percentage terms what remains from sales after a company pays out the cost of goods sold. The higher the margin, the more the company gets to keep from what it takes in.

Another widely followed measure is return on equity, a gauge of how well a company used reinvested earnings to generate additional earnings. Return on equity is viewed as a measure of how efficiently a company deploys its capital. Investors usually look for companies with returns on equity that are high and growing.

In this week's screen, we searched for companies with gross profit margins and returns on equity of above 50%.

Then we looked for one other characteristic to indicate strength, this time on the balance sheet. The companies on our list had to have a long-term debt-to-equity ratio of below 5%, indicating a low degree of leverage.

Our search was limited to stocks that trade on U.S. exchanges. Achieving these three metrics is difficult. Only three companies made the cut.



Price (11/1/07)




Double-Take Software



Ligand Pharmaceuticals



Kaye, a chartered financial analyst, is an analyst for Standard Poor's Portfolio Services.

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