Technology stocks tumbled to start the day Tuesday, but the Nasdaq recovered a large chunk of its early morning losses to close regular trading down -0.50%. Meanwhile, both the S&P 500 and the Dow finished the day slightly in the green. The huge reversal came after Fed Chairman Jerome Powell said the central bank would continue to do all it can to boost the U.S. economy.
Wall Street has used the last week to take home profits on most of the big tech names that have driven the market to records as recently as February 12. Investors have also watched as U.S. Treasury yields rise on the back of bets that there will be more government spending and the vaccine will help the economy roar back later this year.
The recent downturn is likely welcomed by Wall Street as it is a healthy part of the market, especially given the bullish fundamentals that remain firmly in place, including a strong and improving earnings picture. This is part of the reason buyers stepped in after the huge morning tech selloff.
That said, volatility could remain in the near-term, as Wall Street possibly waits for clarity on the expected spending package and sees if more parts of the economy are able to reopen as more people receive the coronavirus vaccine. Therefore, investors might want to search for strong stocks that have proven they can turn assets into profits…
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 four stocks that made it through today’s screen…
Lenovo Group Limited (
LNVGY Quick Quote LNVGY - Free Report)
Century Communities, Inc. (
CCS Quick Quote CCS - Free Report)
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.
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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/
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