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5 Stocks With High ROE to Buy Now as Fed Remains Hawkish
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The equity markets continued their recent downtrend as the Fed Chief refused to ease the tight monetary policy despite signs of a slowdown in rising commodity prices. Maintaining its hawkish stance, the Fed vowed to continue with its aggressive rate hike policy until inflation is under control.
This apparently annulled broad-based expectations of monetary easing that were raised after the consumer price index report in July revealed better-than-expected figures and suggested that inflation may be running out of steam.
Investors would await further clarity regarding the future interest rate path and its likely impact on the economy as concerns with regard to recession refuse to abate. The central bank had earlier offered a broad outline of its reduction in asset holdings for monetary tightening. The Fed intends to reduce Treasury holdings and mortgage-backed securities by $30 billion and $17.5 billion, respectively, from June and extend the tallies to $65 billion and $35 billion after three months.
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. Marriott International, Inc. (MAR - Free Report) , Archer-Daniels-Midland Company (ADM - Free Report) , Dillard's, Inc. (DDS - Free Report) , AGNC Investment Corp. (AGNC - Free Report) and Triton International Limited are some of the stocks with high ROE to profit from.
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 12 stocks that qualified the screen:
Marriott International, Inc.: Headquartered in Bethesda, MD, Marriott is a leading worldwide hospitality company focused on lodging management and franchising. It boasts a portfolio of more than 8,000 properties under 30 leading brands spanning 139 countries and territories.
Marriott delivered a trailing four-quarter earnings surprise of 18.6%, on average and has long-term earnings growth expectation of 40.1%. Currently, MAR has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Archer-Daniels-Midland Company: Founded in 1902, Illinois-based Archer-Daniels is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. The company processes oilseeds, corn, wheat, cocoa and other feedstuffs. Archer-Daniels also engages in the manufacturing and distribution of products like natural flavor ingredients, natural colors, proteins, emulsifiers, soluble fiber, hydrocolloids, natural health and nutrition products as well as other specialty food and feed ingredients.
The company has a long-term earnings growth expectation of 7% and delivered a trailing four-quarter earnings surprise of 20.1%, on average. ADM carries a Zacks Rank #2.
Dillard's, Inc.: Founded in 1938, Dillard's is a large departmental store chain featuring fashion apparel and home furnishings. Its merchandise mix consists of both branded and private-label items. The company’s strategy is to offer more fashion-forward and trendy products to attract customers.
Dillard’s is benefiting from continued momentum in consumer demand and better inventory management. The company has a long-term earnings growth expectation of 14.6% and delivered a trailing four-quarter earnings surprise of 215%, on average. DDS sports a Zacks Rank #1.
AGNC Investment Corp.: Headquartered in Bethesda, MD, AGNC is a real estate investment trust that focuses on leveraged investments in Agency residential mortgage-backed securities. That includes residential mortgage pass-through securities and collateralized mortgage obligations.
The company delivered a trailing four-quarter earnings surprise of 22.3%, on average. AGNC carries a Zacks Rank #2.
Triton International Limited: Based in Hamilton, Bermuda, Triton is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). The company also focuses on leasing chassis, which are used for transporting containers.
The company has a long-term earnings growth expectation of 10% and delivered a trailing four-quarter earnings surprise of 7.5%, on average. TRTN 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.
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 Stocks With High ROE to Buy Now as Fed Remains Hawkish
The equity markets continued their recent downtrend as the Fed Chief refused to ease the tight monetary policy despite signs of a slowdown in rising commodity prices. Maintaining its hawkish stance, the Fed vowed to continue with its aggressive rate hike policy until inflation is under control.
This apparently annulled broad-based expectations of monetary easing that were raised after the consumer price index report in July revealed better-than-expected figures and suggested that inflation may be running out of steam.
Investors would await further clarity regarding the future interest rate path and its likely impact on the economy as concerns with regard to recession refuse to abate. The central bank had earlier offered a broad outline of its reduction in asset holdings for monetary tightening. The Fed intends to reduce Treasury holdings and mortgage-backed securities by $30 billion and $17.5 billion, respectively, from June and extend the tallies to $65 billion and $35 billion after three months.
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. Marriott International, Inc. (MAR - Free Report) , Archer-Daniels-Midland Company (ADM - Free Report) , Dillard's, Inc. (DDS - Free Report) , AGNC Investment Corp. (AGNC - Free Report) and Triton International Limited are some of the stocks with high ROE to profit from.
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 12 stocks that qualified the screen:
Marriott International, Inc.: Headquartered in Bethesda, MD, Marriott is a leading worldwide hospitality company focused on lodging management and franchising. It boasts a portfolio of more than 8,000 properties under 30 leading brands spanning 139 countries and territories.
Marriott delivered a trailing four-quarter earnings surprise of 18.6%, on average and has long-term earnings growth expectation of 40.1%. Currently, MAR has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Archer-Daniels-Midland Company: Founded in 1902, Illinois-based Archer-Daniels is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. The company processes oilseeds, corn, wheat, cocoa and other feedstuffs. Archer-Daniels also engages in the manufacturing and distribution of products like natural flavor ingredients, natural colors, proteins, emulsifiers, soluble fiber, hydrocolloids, natural health and nutrition products as well as other specialty food and feed ingredients.
The company has a long-term earnings growth expectation of 7% and delivered a trailing four-quarter earnings surprise of 20.1%, on average. ADM carries a Zacks Rank #2.
Dillard's, Inc.: Founded in 1938, Dillard's is a large departmental store chain featuring fashion apparel and home furnishings. Its merchandise mix consists of both branded and private-label items. The company’s strategy is to offer more fashion-forward and trendy products to attract customers.
Dillard’s is benefiting from continued momentum in consumer demand and better inventory management. The company has a long-term earnings growth expectation of 14.6% and delivered a trailing four-quarter earnings surprise of 215%, on average. DDS sports a Zacks Rank #1.
AGNC Investment Corp.: Headquartered in Bethesda, MD, AGNC is a real estate investment trust that focuses on leveraged investments in Agency residential mortgage-backed securities. That includes residential mortgage pass-through securities and collateralized mortgage obligations.
The company delivered a trailing four-quarter earnings surprise of 22.3%, on average. AGNC carries a Zacks Rank #2.
Triton International Limited: Based in Hamilton, Bermuda, Triton is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). The company also focuses on leasing chassis, which are used for transporting containers.
The company has a long-term earnings growth expectation of 10% and delivered a trailing four-quarter earnings surprise of 7.5%, on average. TRTN 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.
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.