Dorfman: Google, Facebook among Balance Sheet Powerhouses

Companies that are very strong financially don't get much recognition.

I have a small remedy for that. Once a year, I compile a list of Balance Sheet Powerhouses.

This year, 30 companies made my powerhouse list. Among them are some household names — Facebook Inc., Google Inc. and Qualcomm Inc., for example. The list includes lesser-known names such as Natus Medical Inc. and Forward Air Corp.

All of these companies deserve to be recognized for their excellence, but I don't recommend all of their stocks. Sometimes, their outstanding qualities are reflected in a high stock price.

Today's list is the 11th in a series. The previous ones were published from 2001 to 2006, and from 2011 to 2014.

Back again

Qualcomm Inc., an inventor and licensor of mobile phone technologies, has made my powerhouse list 10 times out of a possible 11, and it is back again this year.

Google, the king of search engines and pioneer of the driverless car, has made the list four times, including this year.

Alexion Pharmaceuticals Inc., a biotech firm in Cheshire, Conn., makes the list this year for the third time. So do Benchmark Electronics, an electronic manufacturer from Angleton, Texas, and Linear Technology Corp. of Milpitas, Calif., which makes analog circuits (think dials on electronic devices).

Eligibility

This year, I tinkered with the criteria for the list, mainly to give deserving midsized companies a better chance. I don't believe my new criteria are easier, however. This year, 30 companies qualified; last year, 31 did.

Only American companies are eligible. To qualify, a company must:

• Have a stock-market value of $1 billion or more;

• Have debt no more than 10 percent of stockholders' equity;

• Have a current ratio (current assets to current liabilities) of 3.0 or better;

• Have enough earnings before interest and taxes (EBIT) to cover interest payments four times over;

• Show a profit in its latest fiscal year.

My picks

This year, I'd like to single out three powerhouse companies I especially like.

Sanderson Farms Inc. (SAFM), based in Laurel, Miss., is one of the nation's larger chicken producers. Of the 30 stocks that made the cut, it is the cheapest, selling for seven times earnings.

Sanderson and other chicken farmers are hurt when the price of corn goes up (to them, it's a raw material to feed their chickens). Right now, corn costs about $3.85 a bushel, way off its highs near $7 a couple of years ago.

Seaboard Corp. (SEB) raises pigs and turkeys, selling the latter under the Butterball brand. While its economics are not the same as for Sanderson, some of the same reasoning applies. In addition, Sanderson does shipping in Latin America and could benefit from the potential opening up of Cuba.

You can buy Seaboard shares for 14 times earnings, in a market where the average multiple is near 19. The discount partly reflects the fact that the company is family-controlled, giving shareholders a smaller voice. But I like the stock and own it for one client.

For most clients, I own OmniVision Technologies Inc. (OVTI), which is making its first appearance on the powerhouse list this year. The Santa Clara, Calif., company makes image sensors used in mobile-phone cameras and other devices.

With the increasing popularity of smart phones, I think OmniVision will achieve strong sales and earnings for the next couple of years and probably longer.

Over the years, the powerhouse stocks I've recommended have averaged a one-year return of 20.7 percent, versus 8.3 percent for the Standard & Poor's 500 Index. Bear in mind that column performance is hypothetical and doesn't reflect trading costs or taxes.

Also, the performance of my column picks shouldn't be confused with results for actual portfolios I manage for clients. And past performance doesn't guarantee results.

Winners' roster

Here is the complete list of the 2015 Balance Sheet Powerhouses:

10-time winner: Qualcomm Inc. (QCOM).

Four-time winner: Google Inc. (GOOG).

Three-time winners: Alexion Pharmaceuticals Inc. (ALXN), Benchmark Electronics (BHE), Linear Technology Corp. (LLTC).

First-time winners: Cal-Maine Foods Inc. (CALM), Coherent Inc. (COHR), 3D Systems Corp. (DDD), Deckers Outdoor Corp. (DECK), Fastenal Co. (FAST), Facebook Inc. (FB), Foot Locker Inc. (FL), First Solar Inc. (FSLR), Forward Air Corp. (FWRD), Guess Inc. (GES), Gildan Activewear Inc. (GIL).

Also: Hibbett Sports Inc. (HIBB), HealthEquity Inc. (HQY), Lannett Co. (LCI), La-Z Boy Inc. (LZB), Methode Electronics Inc. (MEI), Natus Medical Inc. (BABY), OmniVision Technologies Inc. (OVTI), RBC Bearings Inc. (ROLL), Sanderson Farms Inc. (SAFM), Seaboard Corp. (SEB), Sigma-Aldrich Corp. (SIAL), Taser International Inc. (TASR), Teradyne Inc. (TER) and UniFirst Corp. (UNF).

John Dorfman is chairman of Dorfman Value Investments LLC in Boston and a syndicated columnist. He can be reached at jdorfman@dorfmanvalue.com.