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5 DuPont-Tested Quality Stocks to Beat Market Woes
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As the Omicron strain of COVID-19 has escalated and market volatility has edged higher due to rising rate worries, investors are probably hunting for some quality picks to stay unscathed by the ongoing selloff. In this scenario, betting on stocks that are rich in return on equity (ROE) can be rewarding.
ROE is one of the most-coveted metrics among investors in search of profit-generating stocks. But ROE doesn’t always tell the complete story and an investor might make a mistake by selecting stocks based on this ratio. Thus, taking a step beyond the basic ROE and analyzing it at an advanced level or applying the DuPont technique seem a prudent decision.
Here is how DuPont breaks down ROE into its different components:
ROE = Net Income/Equity
Net Income / Equity = (Net Income / Sales) * (Sales / Assets) * (Assets / Equity)
Sanderson Farms , Builders FirstSource (BLDR - Free Report) , XPEL (XPEL - Free Report) , Expeditors International of Washington (EXPD - Free Report) and Cross Country Healthcare (CCRN - Free Report) are some of the stocks with higher ROE derived the DuPont way.
Inside the Strength of DuPont
The DuPont analysis allows investors to evaluate the elements that are the driving factors in any change in ROE. It can help investors to separate companies having higher margins from those having a high turnover. In fact, it also focuses on the company’s leverage status. A lofty ROE could be due to the overuse of debt. If this is the case, the strength of a company can be uncertain if it has a high debt load.
So, an investor relying solely on basic ROE may be confused if he or she has to judge between two stocks of equal ratio. This is where DuPont analysis wins while finding out the better stock.
Investors can simply do this analysis by taking a look at the company’s financials. However, looking at the financial statements of each company separately can be a tedious task. Screening tools like Zacks Research Wizard can come to your rescue and help you shortlist the stocks that look impressive with a DuPont analysis.
Screening Parameters
• Profit Margin more than or equal to 3: As the name suggests, it is a measure of how profitably the business is running. Generally, it is the key contributor to ROE.
• Asset Turnover Ratio more than or equal to 2: It allows an investor to assess management’s efficiency in using assets to drive sales.
• Equity Multiplier between 1 and 3: It’s an indication of how much debt the company uses to finance its assets.
• Zacks Rank less than or equal to 2: Stocks having a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environment.
• Current Price more than $5: This screens out the low priced stocks. However, when looking for lower priced stocks, this criterion can be removed.
Here are five of 10 stocks that made it through the screen:
Sanderson Farms : This Zacks Rank #1 company produces, processes, markets and distributes fresh and frozen chicken products.
Builders FirstSource (BLDR - Free Report) : Builders FirstSource is the largest supplier of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers.
Builders FirstSource carries a Zacks Rank #1. The four-quarter average earnings surprise of BLDR is 71.45%.
XPEL (XPEL - Free Report) : XPEL is a provider of protective films and coatings, which include automotive paint protection film, surface protection film, automotive and architectural window films and ceramic coatings.
XPEL has a Zacks Rank #2.The four-quarter average earnings surprise of XPEL is 31.43%.
Expeditors International of Washington (EXPD - Free Report) :The company is a leading third-party logistics provider. Based in Seattle, Expeditors International of Washingtonis engaged in the business of global logistics management, including international freight forwarding and consolidation, for both air and ocean freight.
Expeditors International of Washington carries a Zacks Rank #1. The four-quarter average earnings surprise of EXPD is 29.14%.
Cross Country Healthcare (CCRN - Free Report) : Cross Country Healthcare is a national leader in providing innovative healthcare workforce solutions and staffing services.
Cross Country Healthcare carries a Zacks Rank #1. The four-quarter average earnings surprise of CCRN is 74.97%.
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5 DuPont-Tested Quality Stocks to Beat Market Woes
As the Omicron strain of COVID-19 has escalated and market volatility has edged higher due to rising rate worries, investors are probably hunting for some quality picks to stay unscathed by the ongoing selloff. In this scenario, betting on stocks that are rich in return on equity (ROE) can be rewarding.
ROE is one of the most-coveted metrics among investors in search of profit-generating stocks. But ROE doesn’t always tell the complete story and an investor might make a mistake by selecting stocks based on this ratio. Thus, taking a step beyond the basic ROE and analyzing it at an advanced level or applying the DuPont technique seem a prudent decision.
Here is how DuPont breaks down ROE into its different components:
ROE = Net Income/Equity
Net Income / Equity = (Net Income / Sales) * (Sales / Assets) * (Assets / Equity)
ROE = Profit Margin * Asset Turnover Ratio * Equity Multiplier
Sanderson Farms , Builders FirstSource (BLDR - Free Report) , XPEL (XPEL - Free Report) , Expeditors International of Washington (EXPD - Free Report) and Cross Country Healthcare (CCRN - Free Report) are some of the stocks with higher ROE derived the DuPont way.
Inside the Strength of DuPont
The DuPont analysis allows investors to evaluate the elements that are the driving factors in any change in ROE. It can help investors to separate companies having higher margins from those having a high turnover. In fact, it also focuses on the company’s leverage status. A lofty ROE could be due to the overuse of debt. If this is the case, the strength of a company can be uncertain if it has a high debt load.
So, an investor relying solely on basic ROE may be confused if he or she has to judge between two stocks of equal ratio. This is where DuPont analysis wins while finding out the better stock.
Investors can simply do this analysis by taking a look at the company’s financials. However, looking at the financial statements of each company separately can be a tedious task. Screening tools like Zacks Research Wizard can come to your rescue and help you shortlist the stocks that look impressive with a DuPont analysis.
Screening Parameters
• Profit Margin more than or equal to 3: As the name suggests, it is a measure of how profitably the business is running. Generally, it is the key contributor to ROE.
• Asset Turnover Ratio more than or equal to 2: It allows an investor to assess management’s efficiency in using assets to drive sales.
• Equity Multiplier between 1 and 3: It’s an indication of how much debt the company uses to finance its assets.
• Zacks Rank less than or equal to 2: Stocks having a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environment.
• Current Price more than $5: This screens out the low priced stocks. However, when looking for lower priced stocks, this criterion can be removed.
Here are five of 10 stocks that made it through the screen:
Sanderson Farms : This Zacks Rank #1 company produces, processes, markets and distributes fresh and frozen chicken products.
The four-quarter average earnings surprise of SAFM is 496.29%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Builders FirstSource (BLDR - Free Report) : Builders FirstSource is the largest supplier of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers.
Builders FirstSource carries a Zacks Rank #1. The four-quarter average earnings surprise of BLDR is 71.45%.
XPEL (XPEL - Free Report) : XPEL is a provider of protective films and coatings, which include automotive paint protection film, surface protection film, automotive and architectural window films and ceramic coatings.
XPEL has a Zacks Rank #2.The four-quarter average earnings surprise of XPEL is 31.43%.
Expeditors International of Washington (EXPD - Free Report) :The company is a leading third-party logistics provider. Based in Seattle, Expeditors International of Washingtonis engaged in the business of global logistics management, including international freight forwarding and consolidation, for both air and ocean freight.
Expeditors International of Washington carries a Zacks Rank #1. The four-quarter average earnings surprise of EXPD is 29.14%.
Cross Country Healthcare (CCRN - Free Report) : Cross Country Healthcare is a national leader in providing innovative healthcare workforce solutions and staffing services.
Cross Country Healthcare carries a Zacks Rank #1. The four-quarter average earnings surprise of CCRN is 74.97%.