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Find Strong Stocks to Buy in the Second Half with this ROE Screen

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Stocks rebounded in the afternoon Tuesday after the S&P 500 and the Dow both fell over 2% in the morning on the back of growing recession fears. Both mounted comebacks that saw the S&P 500 eventually close the day 0.16% higher, while the Dow fell just 0.42%. The tech-heavy Nasdaq jumped 1.75%.

The Tuesday afternoon comeback didn’t include oil and energy stocks, which tumbled alongside some other economically-sensitive companies on the back of growing recession worries. Oil prices dropped 8% Tuesday to below $100 a barrel, as Wall Street ramped up its bets that the U.S. and global economy are headed for a big slowdown.

Oil is now trading at its lowest levels since early May and Citi came out Tuesday and said oil could fall to $65 a barrel by the end of the year if the economy slips into a full-blown recession. The falling prices and lowered projections could indicate that Wall Street is betting that inflation has finally peaked and that consumers are going to slow their spending.

On the positive side, current projections call for the U.S. economy to add 250,000 jobs in June and for the unemployment rate to remain near historic lows at 3.6%. Even though this would mark a big pullback from May’s 390,000, it still showcases solid expansion.

Wall Street will have more information by the end of July as the second quarter earnings season heats up. Plus, the Fed meets again near the end of the month. In the meantime, investors looking to add stocks in the second half should consider buying companies that have proven they can turn assets into profits amid the unknowns and recession fears.


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 13 stocks that made it through today’s screen…

Griffon (GFF - Free Report)

Griffon Corporation is a diversified management and holding company that conducts business through wholly-owned subsidiaries. GFF operates within two broader reportable segments. Griffon’s Consumer and Professional Products unit includes branded consumer and professional tools, as well as residential, industrial and commercial fans, home storage and organization products, and much more. Meanwhile, its Home and Building Products division features garage doors, rolling steel doors, and beyond.

Griffon topped our Q2 financial estimates in late April, crushing our adjusted EPS estimate by 200% for the second quarter in a row. GFF stock soared after its release on the back of strong guidance. Zacks estimates call for its revenue to climb 19% this year and another 8% next year. Meanwhile, its adjusted earnings are projected to jump 118% and 5%, respectively. GFF also pays dividends and it announced on June 27 a special cash dividend of $2.00 per share that will be payable on July 20 to shareholders of record at the close on July 8.

Bluegreen Vacations Holding Corporation (BVH - Free Report)

Bluegreen Vacations is a leading vacation ownership company. Bluegreen Vacations markets and sells vacation ownership interests (“VOIs”) and manages resorts in popular leisure and urban destinations. Bluegreen Vacations has blown away our adjusted Zacks earnings estimates in three out of the last four quarters, including a 43% bottom-line beat in early May.

Bluegreen Vacations posted a big comeback year in 2021 as people returned to their normal lives, with revenue up 46%. Zacks estimates call for the firm to follow that up with another 11% sales growth in 2022 and 3% higher revenue in 2023 to see it pull in $869 million. Meanwhile, its adjusted earnings are projected to climb 35% this year and over 11% in FY23 to hit $4.20 a share. BVH shares have surged 50% in the last year and 100% in the past 24 months. And its dividend yields 2.4% 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.

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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.

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