While many numbers and statistics frequently prove to be of limited value in judging stocks, there is one that is often undervalued: market cap.
Instead of focusing on debt-to-equity [link to debt to equity tag page M6W1] financial ratios exclusively, we recommend that you also look at the ratio between a company’s debt and its market capitalization or “market cap” (the value of all shares the company has outstanding).
Like shareholders’ equity, market cap may differ widely from the net value of a company’s assets. However, a moderate debt-to-market-cap ratio will tend to provide a conservative starting point for analyzing a company’s chances of survival.
A great example is Coca-Cola Co. (symbol KO on New York). The company has long-term debt of $12.7 billion, which represents a moderately high 39% of its $32.6-billion shareholders’ equity. But that debt is just 8.1% of its market cap.
The difference reflects the fact that the company’s balance sheet doesn’t show the true value of its most valuable asset — its so-called intellectual property. In Coke’s case, one key asset is the secret formula for Coca-Cola, which is reputedly carried on the company’s books at one dollar. More important, the Coke brand name carries no value on the company’s balance sheet. However, these are reflected in its huge market cap of $157.2 billion. So, put into perspective, the company’s debt is very low.
We encourage investors to learn about market cap and invest in blue chip stocks like Coca-Cola, TSI Network recommends using our three-part Successful Investor philosophy:
Most investors who successfully build wealth over the long term follow certain investing practices. Find out what they are in our FREE investing guide, The 10 Best Practices of Successful Investors.
On June 22, 2017, Brookfield Asset Management Inc. (now Brookfield Corp.) spun off its specialty insurance business as Trisura Group.
Today this specialty insurer is a sterling example of why we love spinoffs and the power they have to outperform their competitors. We first recommended this firm… Read More
FIRSTSERVICE CORP. $221 is a buy for aggressive investors. The company (Toronto symbol FSV; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 44.6 million; Market cap: $9.9 billion; Price-to-sales ratio: 1.7; Dividend yield: 0.6%; TSINetwork Rating: Extra Risk; www.firstservice.com) has two main businesses: FirstService Brands (54% of revenue)… Read More
WOLVERINE WORLDWIDE INC., $8.57, symbol WWW on New York, is a Michigan-based footwear manufacturer. Its brands include Wolverine Boots and Shoes, Merrell, Sweaty Betty, Hush Puppies, Saucony and Stride Rite.
On January 11, 2024, the company announced that it had sold its Sperry brand (best known… Read More
TC ENERGY INC., $53.07, is a buy. The company (Toronto symbol TRP; Shares o/s: 1.0 billion; Market cap: $55.3 billion; TSINetwork Rating: Above Average; Dividend yield: 7.0%; www.tcenergy.com) is making progress with its plan to build a new pumped storage hydro power project near Meaford, Ontario.
The system would… Read More
OVINTIV INC., $57.03, is a buy. The energy producer (Toronto symbol OVV; Shares outstanding: 272.9 million; Market cap: $16.0 billion; TSINetwork Rating: Average; Dividend yield: 2.8%) operates four core properties: Montney (B.C.), Permian (Texas), Anadarko (Oklahoma) and Uinta (Utah).
In 2024, Ovintiv expects to spend between $2.1 billion and… Read More
Debt-to-equity ratio analysis won’t always reflect the true financial strength of a company
When analyzing a stock, you need to form an idea of how likely the company is to survive a business slump and go on to prosper all the more when economic growth resumes… Read More
CANADIAN NATIONAL RAILWAY CO., $166.65, Toronto symbol CNR, remains a buy.
CN operates Canada’s largest railway. Its 30,250-kilometre network stretches across the country. It also travels down through the U.S. Midwest, connecting Canada to the Gulf of Mexico.
The company’s revenue in the fourth quarter of 2023 fell… Read More
In response to rising interest rates, TD Bank had to set aside more funds to cover potential loan defaults. However, the bank remains well capitalized, which lets it reward investors with higher dividends and share buybacks.
TORONTO-DOMINION BANK $82 is a buy. The lender (Toronto symbol TD; Income-Growth… Read More
Insurance companies are vulnerable to catastrophic events and other unforeseen events like COVID-19. However, these two insurers continue to benefit as higher interest rates boost returns from their fixed-income securities (mainly bonds). That should let them keep raising your dividends.
INTACT FINANCIAL CORP. $208 is a.. Read More
Stantec’s recent triumph in securing contracts, such as the City of Toronto’s sewer system and drainage improvements, showcases its continued success in winning impactful projects.
Investors are paying attention too: the shares have returned 56.3% over the last year (excluding dividends) and a huge 242.3% over… Read More
Learn everything you need to know in 'How to Find the Best Growth Stocks' FREE Special Report from The Successful Investor.
Canadian Growth Stocks:
CGI Group, CAE Inc., Fortis Inc. Stock and more.
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