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5 ROE Stocks to Profit as Intense Volatility Spooks Markets
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After a solid start to the year, the U.S. equity market's growth seemed to have slowed down with intense volatility spooking it. Soaring inflationary pressures led by high crude oil prices continue to weigh on the markets as a possible interest rate hike by the Fed lurks around the corner. Moreover, a steep decline in some blue-chip tech stocks pulled down the broader indices with a string of divergent quarterly performances. However, the markets regained some lost ground as the U.S. economy created 467,000 jobs in January, despite surging infections from the Omicron variant. The broad-based job additions across different sectors portrayed relatively solid job market conditions amid coronavirus-induced adversities.
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. CommScope Holding Company, Inc. (COMM - Free Report) , Microchip Technology Incorporated (MCHP - Free Report) , Qualcomm Incorporated (QCOM - Free Report) , CBRE Group, Inc. (CBRE - Free Report) and Nucor Corporation (NUE - Free Report) are some of the stocks with high ROE to profit.
Why ROE?
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 21 stocks that qualified the screen:
CommScope Holding Company, Inc.: Headquartered in Hickory, NC, CommScope is a premier provider of infrastructure solutions, including wireless and fiber optic solutions, for the core, access and edge layers of communication networks. The company has a long-term earnings growth expectation of 21.6%.
Microchip Technology Incorporated: Chandler, AZ-based Microchip develops and manufactures microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks.
The company delivered a trailing four-quarter earnings surprise of 3.5%, on average, and has a long-term earnings growth expectation of 19.1%. Microchip carries a Zacks Rank #2.
Qualcomm Incorporated: Headquartered in San Diego, CA, Qualcomm designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access (CDMA) technology. The products include CDMA-based integrated circuits and system software for wireless voice and data communications as well as global positioning system products. The company delivered a trailing four-quarter earnings surprise of 12.2%, on average.
Qualcomm carries a Zacks Rank #2. The stock has a long-term earnings growth expectation of 16.1%.
CBRE Group, Inc.: Headquartered in Dallas, TX, CBRE is a commercial real estate services and investment firm, offering a wide range of services to tenants, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estates in all major metropolitan areas across the globe. With more than 100,000 employees, the company serves clients in above 100 countries.
This Zacks #2 Ranked company has a long-term earnings growth expectation of 11%. CBRE delivered a trailing four-quarter earnings surprise of 41%, on average.
Nucor Corporation: Headquartered in Charlotte, NC, Nucor Corporation is a leading producer of structural steel, steel bars, steel joists, steel deck and cold finished bars in the United States. It also produces direct reduced iron that is used in its steel mills.
The company delivered a trailing four-quarter earnings surprise of 0.8%, on average. Nucor sports a Zacks Rank #1.
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.
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.
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5 ROE Stocks to Profit as Intense Volatility Spooks Markets
After a solid start to the year, the U.S. equity market's growth seemed to have slowed down with intense volatility spooking it. Soaring inflationary pressures led by high crude oil prices continue to weigh on the markets as a possible interest rate hike by the Fed lurks around the corner. Moreover, a steep decline in some blue-chip tech stocks pulled down the broader indices with a string of divergent quarterly performances. However, the markets regained some lost ground as the U.S. economy created 467,000 jobs in January, despite surging infections from the Omicron variant. The broad-based job additions across different sectors portrayed relatively solid job market conditions amid coronavirus-induced adversities.
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. CommScope Holding Company, Inc. (COMM - Free Report) , Microchip Technology Incorporated (MCHP - Free Report) , Qualcomm Incorporated (QCOM - Free Report) , CBRE Group, Inc. (CBRE - Free Report) and Nucor Corporation (NUE - Free Report) are some of the stocks with high ROE to profit.
Why ROE?
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 21 stocks that qualified the screen:
CommScope Holding Company, Inc.: Headquartered in Hickory, NC, CommScope is a premier provider of infrastructure solutions, including wireless and fiber optic solutions, for the core, access and edge layers of communication networks. The company has a long-term earnings growth expectation of 21.6%.
CommScope delivered a trailing four-quarter earnings surprise of 4.4%, on average. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Microchip Technology Incorporated: Chandler, AZ-based Microchip develops and manufactures microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks.
The company delivered a trailing four-quarter earnings surprise of 3.5%, on average, and has a long-term earnings growth expectation of 19.1%. Microchip carries a Zacks Rank #2.
Qualcomm Incorporated: Headquartered in San Diego, CA, Qualcomm designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access (CDMA) technology. The products include CDMA-based integrated circuits and system software for wireless voice and data communications as well as global positioning system products. The company delivered a trailing four-quarter earnings surprise of 12.2%, on average.
Qualcomm carries a Zacks Rank #2. The stock has a long-term earnings growth expectation of 16.1%.
CBRE Group, Inc.: Headquartered in Dallas, TX, CBRE is a commercial real estate services and investment firm, offering a wide range of services to tenants, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estates in all major metropolitan areas across the globe. With more than 100,000 employees, the company serves clients in above 100 countries.
This Zacks #2 Ranked company has a long-term earnings growth expectation of 11%. CBRE delivered a trailing four-quarter earnings surprise of 41%, on average.
Nucor Corporation: Headquartered in Charlotte, NC, Nucor Corporation is a leading producer of structural steel, steel bars, steel joists, steel deck and cold finished bars in the United States. It also produces direct reduced iron that is used in its steel mills.
The company delivered a trailing four-quarter earnings surprise of 0.8%, on average. Nucor sports a Zacks Rank #1.
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.
Click here to sign up for a free trial to the Research Wizard today.
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.