For Immediate Release
Chicago, IL – September 31, 2020 – Stocks in this week’s article are Lam Research Corporation (LRCX - Free Report) , Best Buy Co., Inc. (BBY - Free Report) , T. Rowe Price Group, Inc. (TROW - Free Report) , Cadence Design Systems, Inc. (CDNS - Free Report) and KLA Corporation (KLAC - Free Report) .
Top 5 ROE Stocks to Profit from the Fed's New Inflation Stance
The U.S. equity markets have its mojo back, courtesy a new inflation strategy by the Fed in order to restore full employment across the country. The historic shift in the Fed stance put more emphasis on boosting employment, while allowing inflation to rise above the pre-determined 2% rate for some time during the period of economic expansion with interest rates kept at near-zero levels.
The central bank aimed to maintain an average inflation rate of 2% rather than keeping it fixed, by offsetting periods when it has been running persistently below 2% with that of the periods for which it ran high. This is expected to encourage banks to keep low interest rates for a longer period of time, likely stimulating economic growth to help tackle rising unemployment.
As investors employ a wait-and-see approach in a classic example of “backing and filling” in the market, they can benefit from ‘cash cow’ stocks that garner higher returns. However, identifying cash-rich stocks alone does not make for a solid investment proposition unless it is backed by attractive efficiency ratios like return on equity (ROE). A high ROE ensures that the company is reinvesting cash at a high rate of return.
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’s efficiency in rewarding shareholders with attractive risk-adjusted returns.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/amp/stock/news/1048954/top-5-roe-stocks-to-profit-from-feds-new-inflation-stance
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