Balance Sheet Powerhouses

John Dorfman's "Balance Sheet Powerhouses"

To be a Balance Sheet Powerhouse, a stock must meet six standards:

* A market value of $1 billion or more.

* Long-term debt of $200 million or less.

* $300 million or more in cash or near-cash.

* Total debt less than 10 percent of stockholders' equity.

* A current ratio (current assets divided by current

* liabilities) of 2-to-1 or more.

* Earnings of at least 10 cents a share in the latest fiscal year.

Being on the Powerhouse list is an honor, but not necessarily a stock recommendation. In many cases, the excellence of the companies is already reflected in the stock price. Since 2001, the stocks on the Balance Sheet Powerhouse list have returned an average of 10 percent in the 12 months after their listing. That beat the average return on the Standard & Poor's 500, which has been 3.9 percent. Still, I wouldn't call it a spectacular result.

Most years, I have recommended a few of the Balance Sheet Powerhouses that, in addition to financial strength, have stocks that are fairly cheap. The average annual return on my recommended stocks has been 31 percent.

Moral: Financial strength plus a cheap stock beats financial strength alone.

This year's picks? ASH, INGR, AEOS