We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 ROE Picks Fired Up by a Striking Start to Q4 Earnings
Read MoreHide Full Article
The Q4 earnings season is off to a stellar start and is likely to pick up pace with more releases flowing in. This has helped most of the leading benchmark indices to trade near record highs. The stock market euphoria is likely to extend further on tax overhaul and relatively healthy job data, boosting corporate earnings, stoking investments and trickling down to employees in some instances.
As investors employ a wait-and-see approach in a classic example of “backing and filling” in the market, they could benefit from ‘cash cow’ stocks that garner higher returns.
However, singling out cash-rich stocks alone does not make for a solid investment proposition unless they are backed by attractive efficiency ratios like return on equity (ROE). A high ROE ensures that the company is reinvesting its cash at a high rate of return.
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 stocks 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 less than X-Industry: This metric measures how much investors pay for one dollar 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 20 stocks that qualified the screen:
CBRE Group, Inc. : Headquartered in Los Angeles, CBRE Group is a commercial real estate services and investment firm. It offers 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. The company has a trailing four-quarter average positive earnings surprise of 22.3% and long-term earnings growth expectation of 13%. CBRE Group carries a Zacks Rank #2.
Broadcom Limited (AVGO - Free Report) : Broadcom is a premier designer, developer and global supplier of a broad range of semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor (CMOS) based devices and analog III-V based products. The company was formed following the completion of the merger of Avago and Broadcom Corporation on Feb 1, 2016. The company has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. Broadcom has a trailing four-quarter average positive earnings surprise of 4.5% and long-term earnings growth expectation of 13.8%.
LyondellBasell Industries N.V. (LYB - Free Report) : Based in Rotterdam, the Netherlands, LyondellBasell is among the leading plastics, chemical and refining companies with operations across 18 countries. The company’s products are used across a bevy of industries including electronics, automotive parts, packaging, construction materials and biofuels. This Zacks Rank #2 stock has a trailing four-quarter average positive earnings surprise of 0.9% and long-term earnings growth projection of 9%.
Applied Materials, Inc. (AMAT - Free Report) : Headquartered in Santa Clara, CA, Applied Materials is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays, and solar photovoltaic cells and modules. The company also offers deployment and support services related to the equipment supplied. This Zacks Rank #2 company has a trailing four-quarter average positive earnings surprise of 2.8% and long-term earnings growth projection of 12.7%.
Celanese Corporation (CE - Free Report) : Texas-based Celanese is a global hybrid chemical company with diverse products that rank either first or second in their respective markets, based on market share. This Zacks Rank #2 company has a trailing four-quarter average positive earnings surprise of 2.5% and long-term earnings growth projection of 9%.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
5 ROE Picks Fired Up by a Striking Start to Q4 Earnings
The Q4 earnings season is off to a stellar start and is likely to pick up pace with more releases flowing in. This has helped most of the leading benchmark indices to trade near record highs. The stock market euphoria is likely to extend further on tax overhaul and relatively healthy job data, boosting corporate earnings, stoking investments and trickling down to employees in some instances.
As investors employ a wait-and-see approach in a classic example of “backing and filling” in the market, they could benefit from ‘cash cow’ stocks that garner higher returns.
However, singling out cash-rich stocks alone does not make for a solid investment proposition unless they are backed by attractive efficiency ratios like return on equity (ROE). A high ROE ensures that the company is reinvesting its cash at a high rate of return.
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 stocks 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 less than X-Industry: This metric measures how much investors pay for one dollar 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 20 stocks that qualified the screen:
CBRE Group, Inc. : Headquartered in Los Angeles, CBRE Group is a commercial real estate services and investment firm. It offers 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. The company has a trailing four-quarter average positive earnings surprise of 22.3% and long-term earnings growth expectation of 13%. CBRE Group carries a Zacks Rank #2.
Broadcom Limited (AVGO - Free Report) : Broadcom is a premier designer, developer and global supplier of a broad range of semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor (CMOS) based devices and analog III-V based products. The company was formed following the completion of the merger of Avago and Broadcom Corporation on Feb 1, 2016. The company has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. Broadcom has a trailing four-quarter average positive earnings surprise of 4.5% and long-term earnings growth expectation of 13.8%.
LyondellBasell Industries N.V. (LYB - Free Report) : Based in Rotterdam, the Netherlands, LyondellBasell is among the leading plastics, chemical and refining companies with operations across 18 countries. The company’s products are used across a bevy of industries including electronics, automotive parts, packaging, construction materials and biofuels. This Zacks Rank #2 stock has a trailing four-quarter average positive earnings surprise of 0.9% and long-term earnings growth projection of 9%.
Applied Materials, Inc. (AMAT - Free Report) : Headquartered in Santa Clara, CA, Applied Materials is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays, and solar photovoltaic cells and modules. The company also offers deployment and support services related to the equipment supplied. This Zacks Rank #2 company has a trailing four-quarter average positive earnings surprise of 2.8% and long-term earnings growth projection of 12.7%.
Celanese Corporation (CE - Free Report) : Texas-based Celanese is a global hybrid chemical company with diverse products that rank either first or second in their respective markets, based on market share. This Zacks Rank #2 company has a trailing four-quarter average positive earnings surprise of 2.5% and long-term earnings growth projection of 9%.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »