Yahoo Finance 5 Stocks With High ROE to Profit as Markets Hit Record Highs
The broader U.S. equity markets closed at fresh highs on each day this week, driven by solid job additions and a cooling inflationary trend. The markets were also buoyed by the Federal Reserve’s decision to keep interest rates unchanged in its latest policy meeting.
While the consumer price index remained flat in May compared to a broad-based expectation of a 0.1% monthly increase, the U.S. economy added 272,000 jobs. The better-than-expected job additions portrayed robust labor market conditions and strength in the economy. However, the optimism was partially marred by the Fed’s decision to have only one rate cut this year, contrary to an earlier pledge to cut the same thrice in 2024.
As investors employ a wait-and-see approach in a classic example of “backing and filling” in the market, they can benefit from “cash cow” stocks that garner higher returns. However, identifying cash-rich stocks alone does not make for a solid investment proposition unless it is backed by attractive efficiency ratios like return on equity (ROE). A high ROE ensures that the company is reinvesting cash at a high rate of return. ABB Ltd ABBNY, Suzano S.A. SUZ, PulteGroup, Inc. PHM, Alphabet Inc. GOOGL and Banco de Chile BCH are some of the stocks with high ROE to profit from.
ROE: A Key Metric
ROE = Net Income/Shareholders’ Equity
ROE helps investors distinguish profit-generating companies from profit burners and is useful in determining the financial health of a company. In other words, this financial metric enables investors to identify companies that diligently deploy cash for higher returns.
Moreover, ROE is often used to compare the profitability of a company with other firms in the industry — the higher, the better. It measures how well a company is multiplying its profits without investing new equity capital and portrays management’s efficiency in rewarding shareholders with attractive risk-adjusted returns.
Screening Parameters
In order to shortlist stocks that are cash-rich with high ROE, we have added Cash Flow greater than $1 billion and ROE greater than X-Industry as our primary screening parameters. In addition, we have taken a few other criteria into consideration to arrive at a winning strategy.
Price/Cash Flow lesser than X-Industry: This metric measures how much investors pay for $1 of free cash flow. A lower ratio indicates that investors need to pay less for a better cash flow-generating stock.
Return on Assets (ROA) greater than X-Industry: This metric determines how much profit a company earns for every dollar of asset, which includes cash, accounts receivable, property, equipment, inventory and furniture. The higher the ROA, the better it is for the company.
5-Year EPS Historical Growth greater than X-Industry: This criterion indicates that continued earnings momentum has translated into solid cash strength.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Here are five of the 10 stocks that qualified the screening:
ABB: Headquartered in Zurich, Switzerland, ABB offers electrification, motion and automation products and solutions for diverse customers in utilities, transport and infrastructure sectors across the globe. The company’s solutions leverage engineering know-how and software to optimize operations and accelerate industrial transformation.
It has a long-term earnings growth expectation of 8.5%. It has a VGM Score of B. ABB carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Suzano: Headquartered in Salvador, Brazil, Suzano produces and sells eucalyptus pulp and paper products. With more than 90 years of experience, this vertically integrated firm is one of the largest producers of paper and graphic products in South America.
The company offers coated and uncoated printing and writing papers, paperboards, tissue papers and lignin. Suzano sports a Zacks Rank #1.
PulteGroup: Based in Atlanta, GA, PulteGroup engages in homebuilding and financial services businesses, primarily in the United States. The company conducts operations through two primary business segments – Homebuilding – which accounts for the lion’s share of revenues, and Financial Services.
PulteGroup has a long-term earnings growth expectation of 17.6% and delivered a trailing four-quarter earnings surprise of 12.5%, on average. It sports a Zacks Rank #1.
Alphabet: Headquartered in Mountain View, CA, Alphabet is one of the most innovative companies in the modern technological age. Over the last few years, it has evolved from primarily being a search engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. In the online search arena, Google has a monopoly with more than 94% of the online search volume and market. Alphabet has witnessed an increase in search queries, resulting from a rise in user adoption and usage, primarily on mobile devices, continued growth in advertiser activity and improvements in ad formats.
The company has a long-term earnings growth expectation of 17.5% and delivered a trailing four-quarter earnings surprise of 11.3%, on average. Alphabet sports a Zacks Rank #1.
Banco de Chile: Headquartered in Santiago, Chile, Banco de Chile provides various banking services to customers in the Latin American country. These include deposit accounts, loans, payment-related cards and insurance solutions. The company also offers services such as cash management, treasury, financial advisory, trade finance, leasing, factoring, payment, payroll, collection, mutual fund management, securities brokerage, currency trading, investment management, collection, securitization and capital markets services.
It delivered a trailing four-quarter earnings surprise of 7.1%, on average. Banco de Chile carries a Zacks Rank #2.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Banco De Chile (BCH) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Suzano S.A. Sponsored ADR (SUZ) : Free Stock Analysis Report
ABB Ltd (ABBNY) : Free Stock Analysis Report
