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5 Top ROE Stocks to Buy Heading into Q3 Earnings Season
The Q3 earnings season is off to a slow start and is likely to pick up pace with more releases flowing in. Although earnings growth is trending lower than in comparable periods, expectations are high that the current quarter will likely continue with the healthy growth momentum of the past few quarters.
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 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 28 stocks that qualified the screen:
Monsanto Company(NYSE: – Free Report): Missouri-based Monsanto is a leading global provider of agricultural products. The company has a stellar trailing four-quarter average earnings surprise of 244.8% and long-term earnings growth expectation of 12.1%. Monsanto carries a Zacks Rank #2.
CBRE Group, Inc.(NYSE: – Free Report): Headquartered in Los Angeles, CBRE Group 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. The company has a trailing four-quarter average earnings surprise of 18.7% and long-term earnings growth expectation of 13%. CBRE Group sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pepsico, Inc.(NYSE:(PEP - Free Report) – Free Report): Headquartered in Purchase, NY, PepsiCo is one of the leading global food and beverage companies with premier brands like Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. The company has a Zacks Rank #2. Pepsico has a trailing four-quarter average earnings surprise of 4.7% and long-term earnings growth expectation of 7.1%.
Applied Materials, Inc.(Nasdaq:(AMAT - Free Report) – Free Report): Headquartered in Santa Clara, CA, Applied Materials offers manufacturing equipment, services and software to the semiconductor, display, and related industries worldwide. This Zacks Rank #2 stock has a trailing four-quarter average earnings surprise of 2.7% and long-term earnings growth projection of 17.1%.
LyondellBasell Industries N.V.(NYSE:(LYB - Free Report) – Free Report): Based in Rotterdam, the Netherlands, LyondellBasell is among the leading plastics, chemical and refining companies globally 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 earnings surprise of 1.2% and long-term earnings growth projection of 8%.
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 »
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks.com featured highlights: Monsanto, CBRE Group, Pepsico, Applied Materials and LyondellBasell Industries
For Immediate Release
Chicago, IL – October 19, 2017 - Stocks in this week’s article include Monsanto Company (NYSE: – Free Report), CBRE Group, Inc. (NYSE: – Free Report), Pepsico, Inc. (NYSE:(PEP - Free Report) – Free Report), Applied Materials, Inc. (Nasdaq:(AMAT - Free Report) – Free Report) and LyondellBasell Industries N.V. (NYSE:(LYB - Free Report) – Free Report).
Screen of the Week of Zacks Investment Research:
5 Top ROE Stocks to Buy Heading into Q3 Earnings Season
The Q3 earnings season is off to a slow start and is likely to pick up pace with more releases flowing in. Although earnings growth is trending lower than in comparable periods, expectations are high that the current quarter will likely continue with the healthy growth momentum of the past few quarters.
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 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 28 stocks that qualified the screen:
Monsanto Company(NYSE: – Free Report): Missouri-based Monsanto is a leading global provider of agricultural products. The company has a stellar trailing four-quarter average earnings surprise of 244.8% and long-term earnings growth expectation of 12.1%. Monsanto carries a Zacks Rank #2.
CBRE Group, Inc.(NYSE: – Free Report): Headquartered in Los Angeles, CBRE Group 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. The company has a trailing four-quarter average earnings surprise of 18.7% and long-term earnings growth expectation of 13%. CBRE Group sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pepsico, Inc.(NYSE:(PEP - Free Report) – Free Report): Headquartered in Purchase, NY, PepsiCo is one of the leading global food and beverage companies with premier brands like Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. The company has a Zacks Rank #2. Pepsico has a trailing four-quarter average earnings surprise of 4.7% and long-term earnings growth expectation of 7.1%.
Applied Materials, Inc.(Nasdaq:(AMAT - Free Report) – Free Report): Headquartered in Santa Clara, CA, Applied Materials offers manufacturing equipment, services and software to the semiconductor, display, and related industries worldwide. This Zacks Rank #2 stock has a trailing four-quarter average earnings surprise of 2.7% and long-term earnings growth projection of 17.1%.
LyondellBasell Industries N.V.(NYSE:(LYB - Free Report) – Free Report): Based in Rotterdam, the Netherlands, LyondellBasell is among the leading plastics, chemical and refining companies globally 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 earnings surprise of 1.2% and long-term earnings growth projection of 8%.
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 »
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.