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Find Strong Stocks to Buy in May with this ROE Screen
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Stocks tumbled Tuesday, with selling across the board. Wall Street dumped everything from Tesla to Nike to Caterpillar as the market awaits quarterly financial results and guidance from the heavyweights of technology such as Microsoft and Apple in the final week of April.
The market’s huge drop, driven by the Nasdaq, extended what’s been a rough month that followed a nice bounce in the back half of March. The tech-heavy index is now hovering around its March lows and back in bear market territory.
The selling comes amid heightened fears about rising interest rates, soaring inflation, and economic setbacks that could be made worse by massive covid lockdowns in major Chinese cities. The S&P 500 has not been hit as hard as the Nasdaq, but it fell into correction levels once again, about 12% off its highs.
Companies are struggling to top quarterly earnings estimates in the early part of the season, while also providing somewhat lackluster guidance. Yet, even in the face of everything, investors might still want to remain on the hunt for strong stocks to buy because Wall Street could be left chasing returns in equities if they hope to outclimb 8.5% inflation. For instance, the 10-year U.S. Treasury yield hovers around 2.8%.
Market timing is also a very difficult task. And despite all of the factors dragging down the economy and the market at the moment and in the near term, the full-year outlook for S&P 500 companies in 2022 and 2023 highlights resilience and growth.
Still, the current market conditions and the economic uncertainty might mean investors should seek out companies that have proven they can turn assets into profits.
ROE
Return on Equity or ROE helps investors understand if a firm’s executives are creating assets with investors’ cash or burning it. ROE shows a company’s ability to turn assets into profits. Put another way, this vital metric measures the profits made for each dollar of shareholder equity.
ROE is calculated as net income / shareholder's equity. For example: if $0.10 of assets are created for each $1 of shareholder equity that would equal a ROE of 10%.
Overall, Return on Equity is a great item to use regardless of what type of investor you are since it provides insight into management’s ability to create value and keep costs under control. Plus, if ROE slips, it can alert us to potential problems.
With all that said, let’s take a look at this screen’s parameters and see the companies proving they can return value to shareholders instead of churning through their cash…
• Zacks Rank equal to 1
The Zacks Rank looks at upward earnings estimate revisions, among other metrics, in order to find companies that are projected to see their earnings get stronger. In fact, beginning with a Zacks Rank #1 can be a great starting point because it boasts an average annual return of over 25% per year during the last 30 years.
• Price greater than or equal to 5
Today we ruled out any stocks that are trading for less than $5 a share because they can be more volatile and speculative.
• Price/Sales Ratio less than or equal to 1
On top of that, we are looking for a low price to sales ratio. Today we went with 1 or below as this range is usually thought to provide better value since investors pay less for each unit of sales.
• % (Broker) Rating Strong Buy equal to 100 (%)
In this screen, we decided to go with companies that brokers are fully on board with since ratings are typically skewed strongly toward ‘buy’ and ‘strong buy.’
• ROE greater than or equal to 10
Lastly, but most importantly for today’s screen, we got rid of any companies with Return on Equity of less than 10 because the median ROE value for all of the stocks in the Zacks Universe is under 10.
Here are two of the roughly dozen stocks that made it through today’s screen…
Univar Solutions Inc.
Univar Solutions is a leading global commodity and specialty chemical and ingredient distributor. Univar’s revenue climbed 15% in 2021 and its adjusted earnings jumped up 68%. UNVR executives provided strong guidance for 2022 at the end of February, with its FY22 consensus EPS estimate up 34% and its FY23 figure 10% higher.
Zacks estimates call for Univar’s adjusted 2022 earnings to climb another 19% on 6% stronger sales. The company is expected to follow this showing up with higher earnings and revenue next year. UNVR stock has popped 33% in the last three years to outpace its industry’s 25% climb. This run includes a 5% climb in 2022 as Wall Street turns to energy and commodities stocks. And all five of the brokerage recommendations Zacks has for UNVR are “Strong Buys.”
Jabil is a manufacturing solutions provider and electronics maker. JBL topped our Q2 fiscal 2022 estimates in mid-March and raised its outlook. Jabil’s revenue is now projected to climb over 11% this year to nearly $33 billion, based on Zacks estimates. Meanwhile, JBL’s adjusted 2022 earnings are expected to surge 29%, with more top and bottom-line growth expected next year.
Jabil has fallen along with the rest of the market and many tech stocks in 2022, which offers investors a potentially more enticing entry point. Including the drop, Jabil shares have surged 90% in the last three years to blow away the electronics market’s 58% run and the Zacks Tech sector’s 54%. And the stock trades at a solid discount to its industry at 8.9X forward 12-month earnings vs. 15.5X for the larger electronics market.
Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.
Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
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.
Image: Bigstock
Find Strong Stocks to Buy in May with this ROE Screen
Stocks tumbled Tuesday, with selling across the board. Wall Street dumped everything from Tesla to Nike to Caterpillar as the market awaits quarterly financial results and guidance from the heavyweights of technology such as Microsoft and Apple in the final week of April.
The market’s huge drop, driven by the Nasdaq, extended what’s been a rough month that followed a nice bounce in the back half of March. The tech-heavy index is now hovering around its March lows and back in bear market territory.
The selling comes amid heightened fears about rising interest rates, soaring inflation, and economic setbacks that could be made worse by massive covid lockdowns in major Chinese cities. The S&P 500 has not been hit as hard as the Nasdaq, but it fell into correction levels once again, about 12% off its highs.
Companies are struggling to top quarterly earnings estimates in the early part of the season, while also providing somewhat lackluster guidance. Yet, even in the face of everything, investors might still want to remain on the hunt for strong stocks to buy because Wall Street could be left chasing returns in equities if they hope to outclimb 8.5% inflation. For instance, the 10-year U.S. Treasury yield hovers around 2.8%.
Market timing is also a very difficult task. And despite all of the factors dragging down the economy and the market at the moment and in the near term, the full-year outlook for S&P 500 companies in 2022 and 2023 highlights resilience and growth.
Still, the current market conditions and the economic uncertainty might mean investors should seek out companies that have proven they can turn assets into profits.
ROE
Return on Equity or ROE helps investors understand if a firm’s executives are creating assets with investors’ cash or burning it. ROE shows a company’s ability to turn assets into profits. Put another way, this vital metric measures the profits made for each dollar of shareholder equity.
ROE is calculated as net income / shareholder's equity. For example: if $0.10 of assets are created for each $1 of shareholder equity that would equal a ROE of 10%.
Overall, Return on Equity is a great item to use regardless of what type of investor you are since it provides insight into management’s ability to create value and keep costs under control. Plus, if ROE slips, it can alert us to potential problems.
With all that said, let’s take a look at this screen’s parameters and see the companies proving they can return value to shareholders instead of churning through their cash…
• Zacks Rank equal to 1
The Zacks Rank looks at upward earnings estimate revisions, among other metrics, in order to find companies that are projected to see their earnings get stronger. In fact, beginning with a Zacks Rank #1 can be a great starting point because it boasts an average annual return of over 25% per year during the last 30 years.
• Price greater than or equal to 5
Today we ruled out any stocks that are trading for less than $5 a share because they can be more volatile and speculative.
• Price/Sales Ratio less than or equal to 1
On top of that, we are looking for a low price to sales ratio. Today we went with 1 or below as this range is usually thought to provide better value since investors pay less for each unit of sales.
• % (Broker) Rating Strong Buy equal to 100 (%)
In this screen, we decided to go with companies that brokers are fully on board with since ratings are typically skewed strongly toward ‘buy’ and ‘strong buy.’
• ROE greater than or equal to 10
Lastly, but most importantly for today’s screen, we got rid of any companies with Return on Equity of less than 10 because the median ROE value for all of the stocks in the Zacks Universe is under 10.
Here are two of the roughly dozen stocks that made it through today’s screen…
Univar Solutions Inc.
Univar Solutions is a leading global commodity and specialty chemical and ingredient distributor. Univar’s revenue climbed 15% in 2021 and its adjusted earnings jumped up 68%. UNVR executives provided strong guidance for 2022 at the end of February, with its FY22 consensus EPS estimate up 34% and its FY23 figure 10% higher.
Zacks estimates call for Univar’s adjusted 2022 earnings to climb another 19% on 6% stronger sales. The company is expected to follow this showing up with higher earnings and revenue next year. UNVR stock has popped 33% in the last three years to outpace its industry’s 25% climb. This run includes a 5% climb in 2022 as Wall Street turns to energy and commodities stocks. And all five of the brokerage recommendations Zacks has for UNVR are “Strong Buys.”
Jabil (JBL - Free Report)
Jabil is a manufacturing solutions provider and electronics maker. JBL topped our Q2 fiscal 2022 estimates in mid-March and raised its outlook. Jabil’s revenue is now projected to climb over 11% this year to nearly $33 billion, based on Zacks estimates. Meanwhile, JBL’s adjusted 2022 earnings are expected to surge 29%, with more top and bottom-line growth expected next year.
Jabil has fallen along with the rest of the market and many tech stocks in 2022, which offers investors a potentially more enticing entry point. Including the drop, Jabil shares have surged 90% in the last three years to blow away the electronics market’s 58% run and the Zacks Tech sector’s 54%. And the stock trades at a solid discount to its industry at 8.9X forward 12-month earnings vs. 15.5X for the larger electronics market.
Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.
Click here to sign up for a free trial to the Research Wizard today.
Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
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/