Market volume remained low to start the first full week of the Q1 earnings season. Wall Street is in the midst of trying to sort out banking and finance sector results, which have been mixed so far. JPMorgan has impressed, while others such as State Street sparked worries.

The next several weeks are likely to prove pivotal for the stock market since a lot is riding on corporate earnings outlooks holding steady. The first several days have hardly triggered much unease, but a vast majority of the S&P 500 still hasn't reported, including the tech and retail giants.

That said, it is worth noting that the VIX continues to drop to new 52-week lows. This could signal a mixture of calmness and a possible willingness to chop around sideways until the next few inflation reports confirm cooling prices, or spark fears about higher rates for longer.

The bulls remain in control of the market at the moment and might be able to push things higher if guidance comes in strong. And long-term investors are often well-served to stay exposed to stocks at all times and avoid market timing.  

Instead of trying to chase some of the big tech names and high growth stocks that have surged in 2023, investors might be better served to buy companies that have proven they can turn assets into profits, especially with a possible recession looming.  

Today, we explore how investors can utilize an ROE screen to find “Strong Buy” stocks that have proven they can turn assets into profits to buy in April and throughout 2023.

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 is one of the eight stocks that made it through today’s screen…

Insperity, Inc. ((NSP Quick QuoteNSP - Free Report) )

Insperity is an HR solutions firm that aims to help scale alongside its customers' businesses. Insperity’s offerings include HR admin and payroll, employee benefits, risk management, HR-focused compliance, and more. NSP has grown its revenue at a rather impressive clip for the past decade, including 19% sales growth in FY22 and 16% in FY21. The top-line expansion helped Insperity post 42% adjusted earnings growth last year.

Insperity upped its guidance to help it land a Zacks Rank #1 (Strong Buy) at the moment. Zacks estimates call for NSP to post 8% revenue growth in 2023 and 2024 to help boost its bottom line as well. And NSP has crushed our adjusted EPS estimates in the trailing four quarters.

Insperity’s dividend currently yields 1.6% and all three of the brokerage recommendations Zacks has are “Strong Buys.” NSP shares have soared 210% during the last three years to easily top the S&P 500’s 50%. This includes a 23% climb in the past 12 months and an 11% YTD surge. And its return on equity comes in at a whopping 340% vs. its industry’s 18% average.

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/