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Find Strong Stocks to Buy for June and Beyond with this ROE Screen
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The stock market dropped again on Tuesday after investors prevented the S&P 500 from falling into an official bear market to start the week. The rebound proved to be short-lived and Wall Street might soon fear stocks are set to extend their already-substantial losing streaks as fears about a possible recession mount.
Last week, the S&P 500 and the Nasdaq posted their seventh-straight declines to push the indexes on their longest losing streaks since 2001. Dot.com bust comparisons highlight just how brutal of a stretch stocks have suffered through as investors recalibrate nearly everything in the wake of rising U.S. interest rates, soaring prices, and global economic uncertainty.
The big retail earnings reports from Target, Walmart, and others last week spooked Wall Street. The fear is that rising costs will either keep negatively impacting earnings and margins, or be passed onto consumers and lower sales. Plus, the supply chain bottlenecks rage on amid ongoing zero-covid lockdowns in various parts of China. And the Russian invasion of Ukraine continues to ripple through the energy sector.
In the background of all of this, the Fed is trying to engineer a softish landing for the U.S. economy, which won’t be easy as the central bank tries to reel in 40-year high inflation. Last week, JPMorgan lowered its U.S. GDP forecast and Goldman Sachs trimmed its outlook for China.
But all of this doesn’t mean investors should simply stay on the sidelines because market timing is far too difficult and parking everything in cash comes at a cost, with over 8% inflation. Therefore, those with long-term outlooks might consider buying strong stocks of companies with a record of turning assets into profits heading into June and beyond.
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 15 stocks that made it through today’s screen…
LCI Industries sells tons of components for leading OEMs in the recreational vehicle and transportation product markets. LCI Industries, through its wholly-owned subsidiary, Lippert operates outside of the RV world in areas including buses, boat trailers, livestock, equipment, manufactured and modular housing, and far beyond. LCI Industries grew its top and bottom lines rather steadily over the past 10-plus years, with only one tiny hiccup and it’s projected to post another 24% revenue growth this year and 68% higher earnings.
LCI Industries crushed our quarterly earnings estimates on May 10 and upped its guidance in the face of a slowing economy and supply chain setbacks. Meanwhile, all four of the brokerage recommendations Zacks has are “Strong Buys,” and its dividend yield sits at 3.9% to crush the 10-year U.S. Treasury and the S&P 500. Plus, LCI Industries on May 19 announced a new $200 million stock repurchase program over the next three years.
Vistra is a leading integrated retail electricity and power generation company. Vistra brings its products and services to market in roughly 20 states, helping to serve nearly 4.3 million residential, commercial, and industrial retail customers with electricity and natural gas. Vistra is also one of the largest competitive electricity providers in the country and offers over 50 renewable energy plans. VST’s diverse portfolio includes natural gas, nuclear, solar, and battery energy storage facilities, and more.
Vistra’s FY22 and 2023 adjusted earnings outlook surged following its first quarter release on May 6, with its FY23 consensus now up 55% from where it was serval months ago. VST stock has climbed 12% in 2022, as Wall Street clamors for anything in the broader energy space. And it recently raised its dividend, which yields 2.8% at the moment.
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 for June and Beyond with this ROE Screen
The stock market dropped again on Tuesday after investors prevented the S&P 500 from falling into an official bear market to start the week. The rebound proved to be short-lived and Wall Street might soon fear stocks are set to extend their already-substantial losing streaks as fears about a possible recession mount.
Last week, the S&P 500 and the Nasdaq posted their seventh-straight declines to push the indexes on their longest losing streaks since 2001. Dot.com bust comparisons highlight just how brutal of a stretch stocks have suffered through as investors recalibrate nearly everything in the wake of rising U.S. interest rates, soaring prices, and global economic uncertainty.
The big retail earnings reports from Target, Walmart, and others last week spooked Wall Street. The fear is that rising costs will either keep negatively impacting earnings and margins, or be passed onto consumers and lower sales. Plus, the supply chain bottlenecks rage on amid ongoing zero-covid lockdowns in various parts of China. And the Russian invasion of Ukraine continues to ripple through the energy sector.
In the background of all of this, the Fed is trying to engineer a softish landing for the U.S. economy, which won’t be easy as the central bank tries to reel in 40-year high inflation. Last week, JPMorgan lowered its U.S. GDP forecast and Goldman Sachs trimmed its outlook for China.
But all of this doesn’t mean investors should simply stay on the sidelines because market timing is far too difficult and parking everything in cash comes at a cost, with over 8% inflation. Therefore, those with long-term outlooks might consider buying strong stocks of companies with a record of turning assets into profits heading into June and beyond.
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 15 stocks that made it through today’s screen…
LCI Industries (LCII - Free Report)
LCI Industries sells tons of components for leading OEMs in the recreational vehicle and transportation product markets. LCI Industries, through its wholly-owned subsidiary, Lippert operates outside of the RV world in areas including buses, boat trailers, livestock, equipment, manufactured and modular housing, and far beyond. LCI Industries grew its top and bottom lines rather steadily over the past 10-plus years, with only one tiny hiccup and it’s projected to post another 24% revenue growth this year and 68% higher earnings.
LCI Industries crushed our quarterly earnings estimates on May 10 and upped its guidance in the face of a slowing economy and supply chain setbacks. Meanwhile, all four of the brokerage recommendations Zacks has are “Strong Buys,” and its dividend yield sits at 3.9% to crush the 10-year U.S. Treasury and the S&P 500. Plus, LCI Industries on May 19 announced a new $200 million stock repurchase program over the next three years.
Vistra (VST - Free Report)
Vistra is a leading integrated retail electricity and power generation company. Vistra brings its products and services to market in roughly 20 states, helping to serve nearly 4.3 million residential, commercial, and industrial retail customers with electricity and natural gas. Vistra is also one of the largest competitive electricity providers in the country and offers over 50 renewable energy plans. VST’s diverse portfolio includes natural gas, nuclear, solar, and battery energy storage facilities, and more.
Vistra’s FY22 and 2023 adjusted earnings outlook surged following its first quarter release on May 6, with its FY23 consensus now up 55% from where it was serval months ago. VST stock has climbed 12% in 2022, as Wall Street clamors for anything in the broader energy space. And it recently raised its dividend, which yields 2.8% at the moment.
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/