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5 Top-Ranked Stocks Set to Emerge as DuPont Winners
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Return on equity is one of the most sought-after metrics for an investment. The metric enables investors to differentiate between a profit-churner and a profit-burner. It is a profitability ratio that measures the earnings generated by a company from its equity.
To shortlist these gems, one can look at the DuPont technique to analyze the basic ROE at an advanced level. 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 Inc., MasterCraft Boat (MCFT - Free Report) , MarineMax (HZO - Free Report) , Boise Cascade (BCC - Free Report) and Expeditors International of Washington (EXPD - Free Report) are likely to win on the DuPont technique.
Importance of Du Pont
Although one can’t play down the importance of normal ROE calculation, the fact remains that it doesn’t always provide a complete picture. The DuPont analysis, on the other hand, allows investors to assess the elements that play a dominant role in any change in ROE. It can help investors to segregate companies having higher margins from those having high turnover. For example, high-end fashion brands generally survive on high margin as compared with retail goods, which rely on higher turnover.
In fact, it also sheds light on the company’s leverage status, which can go a long way in selecting stocks poised for gains. A lofty ROE could be due to the overuse of debt. Thus, the strength of a company can be misleading if it has a high debt load.
So, an investor confined solely to an ROE perspective may be confused if he or she has to judge between two stocks of equal ratio. This is where DuPont analysis wins over and spots the better stock.
Investors can simply do this analysis by taking a look at the company’s financials.However, looking at 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 14 stocks that made it through the screen:
The average earnings surprise of SAFM for the past four quarters is 46.75%.
MasterCraft Boat (MCFT - Free Report) : The Zacks Rank #2 company manufactures and markets recreational powerboats through its subsidiaries.
The average earnings surprise of MCFT for the past four quarters is 24.88%.
MarineMax (HZO - Free Report) : The nation's largest recreational boat and yacht retailer, MarineMax, has a Zacks Rank #1.
The average earnings surprise of HZO for the past four quarters is 55.77%.
Boise Cascade (BCC - Free Report) : This Zacks Rank #1 company operates as a wood products manufacturer and building materials distributor.
The average earnings surprise of BCC for the past four quarters is 48.40%.
Expeditors International of Washington (EXPD - Free Report) : Zacks Rank #1 Expeditors International of Washington is a leading third-party logistics provider.
The average earnings surprise of EXPD for the past four quarters is 34.18%.
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 Top-Ranked Stocks Set to Emerge as DuPont Winners
Return on equity is one of the most sought-after metrics for an investment. The metric enables investors to differentiate between a profit-churner and a profit-burner. It is a profitability ratio that measures the earnings generated by a company from its equity.
To shortlist these gems, one can look at the DuPont technique to analyze the basic ROE at an advanced level. 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 Inc. , MasterCraft Boat (MCFT - Free Report) , MarineMax (HZO - Free Report) , Boise Cascade (BCC - Free Report) and Expeditors International of Washington (EXPD - Free Report) are likely to win on the DuPont technique.
Importance of Du Pont
Although one can’t play down the importance of normal ROE calculation, the fact remains that it doesn’t always provide a complete picture. The DuPont analysis, on the other hand, allows investors to assess the elements that play a dominant role in any change in ROE. It can help investors to segregate companies having higher margins from those having high turnover. For example, high-end fashion brands generally survive on high margin as compared with retail goods, which rely on higher turnover.
In fact, it also sheds light on the company’s leverage status, which can go a long way in selecting stocks poised for gains. A lofty ROE could be due to the overuse of debt. Thus, the strength of a company can be misleading if it has a high debt load.
So, an investor confined solely to an ROE perspective may be confused if he or she has to judge between two stocks of equal ratio. This is where DuPont analysis wins over and spots the better stock.
Investors can simply do this analysis by taking a look at the company’s financials.However, looking at 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 14 stocks that made it through the screen:
Sanderson Farms Inc. : This poultry processing company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The average earnings surprise of SAFM for the past four quarters is 46.75%.
MasterCraft Boat (MCFT - Free Report) : The Zacks Rank #2 company manufactures and markets recreational powerboats through its subsidiaries.
The average earnings surprise of MCFT for the past four quarters is 24.88%.
MarineMax (HZO - Free Report) : The nation's largest recreational boat and yacht retailer, MarineMax, has a Zacks Rank #1.
The average earnings surprise of HZO for the past four quarters is 55.77%.
Boise Cascade (BCC - Free Report) : This Zacks Rank #1 company operates as a wood products manufacturer and building materials distributor.
The average earnings surprise of BCC for the past four quarters is 48.40%.
Expeditors International of Washington (EXPD - Free Report) : Zacks Rank #1 Expeditors International of Washington is a leading third-party logistics provider.
The average earnings surprise of EXPD for the past four quarters is 34.18%.
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.