Many companies are employing greater financial leverage in an attempt to boost shareholder returns (see BusinessWeek.com, 1/8/07, "Big Borrowing Bolsters Buybacks"). And while debt-financed share buybacks and special dividends can indeed achieve that end, the elevated degree of leverage can leave some investors queasy.
Is it possible to find stocks of companies that provide nice returns to shareholders and yet maintain a solid financial position? We set out to find some examples in this week's screen.
First, we went to some key balance-sheet measures. We looked for those issues with a long-term debt-to-equity ratio (total long-term debt divided by total shareholders' equity) below 5, and a current ratio (current assets divided by current liabilities) above 2. The intent here is to identify companies that have lots of cash and low debt.
Now for the return part. We next screened for stocks with a return on equity above 20, meaning the companies deploy their capital effectively, resulting in solid returns for shareholders.
To avoid speculative issues, each stock had to be priced at more than $5.00 per share and have a market capitalization above $1 billion.
When we finished our search, these seven names emerged:
|Barr Pharmaceuticals (BRL)||52.62|
|Bed Bath & Beyond (BBBY)||42.01|
|Intuitive Surgical (ISRG)||94.75|
|Linear Technology (LLTC)||31.12|
|Urban Outfitters (URBN)||24.86|