The broader equity markets moved northward yesterday on U.S. Presidential election results. With Republican candidate Donald Trump emerging victorious over his Democrat rival Kamala Harris, the markets witnessed a short-term rally, and leading benchmark indices scripted record-high tallies. Experts widely anticipate that Trump’s univocal support for lower corporate tax rates, deregulation and industrial policies will spur the U.S. economy and result in another “Trump rally.” However, continued geopolitical unrest in the Middle East remains a latent threat, leading to market uncertainty and a volatility slugfest.

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. Alphabet Inc. (GOOGL Quick QuoteGOOGL - Free Report) , Leidos Holdings, Inc. (LDOS Quick QuoteLDOS - Free Report) and Regions Financial Corporation (RF Quick QuoteRF - Free Report) 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.

Parameters Used for Screening

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 three of the five stocks that qualified the screening:

Alphabet: Headquartered in Mountain View, Alphabet is one of the most innovative companies in the modern technological age. Over the last few years, it has evolved from a search engine provider to a firm offering cloud computing, ad-based video and music streaming services, autonomous vehicles, healthcare and consumer products.  

The company has a long-term earnings growth expectation of 17.6% and delivered a trailing four-quarter earnings surprise of 11.8%, on average. It has a VGM Score of B. Alphabet carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. 

Leidos: Delaware-based Leidos is a global science and technology leader serving the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in the fields of cybersecurity, data analytics, enterprise IT modernization, operations and logistics, sensors, collection and phenomenology, software development and systems engineering.

The company has a long-term earnings growth expectation of 12.5% and delivered a trailing four-quarter earnings surprise of 29.9%, on average. It has a VGM Score of A. Leidos sports a Zacks Rank #1. 

Regions Financial: Birmingham, AL-based Regions Financial is a financial holding company that provides retail, commercial and mortgage banking, as well as other financial services in asset management, wealth management, securities brokerage, trust services, mergers and acquisitions (M&A) advisory services, and other specialty financing.

It has a long-term earnings growth expectation of 4.6% and delivered a trailing four-quarter earnings surprise of 4.4%, on average. Regions Financial 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.