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5 High ROE Stocks to Buy as Geopolitical Crisis Hits Market
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The U.S. equity markets witnessed intense volatility over the past few days driven by the geopolitical crisis triggered by Russia’s invasion of Ukraine. With the majority of U.S. allies imposing strict economic sanctions on Russia for its unprovoked attacks on Ukraine’s sovereignty, the markets were hit by uncertainty over their possible impacts on the global economy. Oil prices also mirrored the broader market sentiments and recorded odd price swings amid fears of supply chain disruptions, as Russia is reportedly the second-largest exporter of crude worldwide.
However, speculations about a likely deal by the United States and its allies with Iran for lifting its economic sanctions appeared to cool off the surging oil prices. In addition, an accommodative Fed policy regarding possible interest rate hikes seemed to have soothed the frayed investor nerves. Fed chief Jerome Powell assured investors of a cautious approach by re-assessing the existing market conditions and broadly hinting only a quarter-basis point hike in interest rates this month.
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. The Coca-Cola Company (KO - Free Report) , Microchip Technology Incorporated (MCHP - Free Report) , Qualcomm Incorporated (QCOM - Free Report) , Whirlpool Corporation (WHR - Free Report) and D.R. Horton, Inc. (DHI - Free Report) are some of the stocks with high ROE to profit.
Why ROE?
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 companies 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.
Screening Parameters
In order to shortlist stocks that are cash-rich with high ROE, we have added Cash Flow greater than $1 billion and ROE greater than X-Industry as our primary screening parameters. In addition, we have taken a few other criteria into consideration to arrive at a winning strategy.
Price/Cash Flow lesser than X-Industry: This metric measures how much investors pay for $1 of free cash flow. A lower ratio indicates that investors need to pay less for a better cash flow-generating stock.
Return on Assets (ROA) greater than X-Industry: This metric determines how much profit a company earns for every dollar of asset, which includes cash, accounts receivable, property, equipment, inventory and furniture. The higher the ROA, the better it is for the company.
5-Year EPS Historical Growth greater than X-Industry: This criterion indicates that continued earnings momentum has translated into solid cash strength.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Here are five of the 34 stocks that qualified the screen:
The Coca-Cola Company: Based in Atlanta, GA, Coca-Cola is a leading player in the non-alcoholic beverage industry. It offers more than 4,700 beverage products, from sodas to energy drinks to non-carbonated beverages. The company has a long-term earnings growth expectation of 8%.
Microchip Technology Incorporated: Chandler, AZ-based Microchip develops and manufactures microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks.
The company delivered a trailing four-quarter earnings surprise of 3.5%, on average, and has a long-term earnings growth expectation of 20.3%. Microchip carries a Zacks Rank #2.
Qualcomm Incorporated: Headquartered in San Diego, CA, Qualcomm designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access (CDMA) technology. The products include CDMA-based integrated circuits and system software for wireless voice and data communications as well as global positioning system products. The company delivered a trailing four-quarter earnings surprise of 12.2%, on average.
Qualcomm carries a Zacks Rank #2. The stock has a long-term earnings growth expectation of 16.1%.
Whirlpool Corporation: Benton Harbor, MI-based Whirlpool is one of the largest manufacturers of home appliances in the world. The company manufactures products in 14 countries and markets products in nearly every nation.
This Zacks #2 Ranked company has a long-term earnings growth expectation of 6.2%. Whirlpool delivered a trailing four-quarter earnings surprise of 14.9%, on average.
D.R. Horton, Inc.: Based in Texas, D.R. Horton is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses in the entry-level and move-up markets. Its operations are spread across 102 markets in 32 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States.
The company has a long-term earnings growth expectation of 10.5% and delivered a trailing four-quarter earnings surprise of 22.7%, on average. D. R. Horton sports a Zacks Rank #1.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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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5 High ROE Stocks to Buy as Geopolitical Crisis Hits Market
The U.S. equity markets witnessed intense volatility over the past few days driven by the geopolitical crisis triggered by Russia’s invasion of Ukraine. With the majority of U.S. allies imposing strict economic sanctions on Russia for its unprovoked attacks on Ukraine’s sovereignty, the markets were hit by uncertainty over their possible impacts on the global economy. Oil prices also mirrored the broader market sentiments and recorded odd price swings amid fears of supply chain disruptions, as Russia is reportedly the second-largest exporter of crude worldwide.
However, speculations about a likely deal by the United States and its allies with Iran for lifting its economic sanctions appeared to cool off the surging oil prices. In addition, an accommodative Fed policy regarding possible interest rate hikes seemed to have soothed the frayed investor nerves. Fed chief Jerome Powell assured investors of a cautious approach by re-assessing the existing market conditions and broadly hinting only a quarter-basis point hike in interest rates this month.
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. The Coca-Cola Company (KO - Free Report) , Microchip Technology Incorporated (MCHP - Free Report) , Qualcomm Incorporated (QCOM - Free Report) , Whirlpool Corporation (WHR - Free Report) and D.R. Horton, Inc. (DHI - Free Report) are some of the stocks with high ROE to profit.
Why ROE?
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 companies 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.
Screening Parameters
In order to shortlist stocks that are cash-rich with high ROE, we have added Cash Flow greater than $1 billion and ROE greater than X-Industry as our primary screening parameters. In addition, we have taken a few other criteria into consideration to arrive at a winning strategy.
Price/Cash Flow lesser than X-Industry: This metric measures how much investors pay for $1 of free cash flow. A lower ratio indicates that investors need to pay less for a better cash flow-generating stock.
Return on Assets (ROA) greater than X-Industry: This metric determines how much profit a company earns for every dollar of asset, which includes cash, accounts receivable, property, equipment, inventory and furniture. The higher the ROA, the better it is for the company.
5-Year EPS Historical Growth greater than X-Industry: This criterion indicates that continued earnings momentum has translated into solid cash strength.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Here are five of the 34 stocks that qualified the screen:
The Coca-Cola Company: Based in Atlanta, GA, Coca-Cola is a leading player in the non-alcoholic beverage industry. It offers more than 4,700 beverage products, from sodas to energy drinks to non-carbonated beverages. The company has a long-term earnings growth expectation of 8%.
Coca-Cola delivered a trailing four-quarter earnings surprise of 13.5%, on average. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Microchip Technology Incorporated: Chandler, AZ-based Microchip develops and manufactures microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks.
The company delivered a trailing four-quarter earnings surprise of 3.5%, on average, and has a long-term earnings growth expectation of 20.3%. Microchip carries a Zacks Rank #2.
Qualcomm Incorporated: Headquartered in San Diego, CA, Qualcomm designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access (CDMA) technology. The products include CDMA-based integrated circuits and system software for wireless voice and data communications as well as global positioning system products. The company delivered a trailing four-quarter earnings surprise of 12.2%, on average.
Qualcomm carries a Zacks Rank #2. The stock has a long-term earnings growth expectation of 16.1%.
Whirlpool Corporation: Benton Harbor, MI-based Whirlpool is one of the largest manufacturers of home appliances in the world. The company manufactures products in 14 countries and markets products in nearly every nation.
This Zacks #2 Ranked company has a long-term earnings growth expectation of 6.2%. Whirlpool delivered a trailing four-quarter earnings surprise of 14.9%, on average.
D.R. Horton, Inc.: Based in Texas, D.R. Horton is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses in the entry-level and move-up markets. Its operations are spread across 102 markets in 32 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States.
The company has a long-term earnings growth expectation of 10.5% and delivered a trailing four-quarter earnings surprise of 22.7%, on average. D. R. Horton sports a Zacks Rank #1.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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.