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5 Stocks With High ROE to Buy as Bond Yields Keep Rising
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The U.S. equity markets witnessed a downtrend for the past few trading sessions despite a relatively healthy earnings performance from hitherto reported companies. The decline was largely triggered by the continued rise in bond yields, with the benchmark 10-year Treasury yield reaching a high of 4.239% - the highest since 2008. The rising bond yields have been an offshoot of high inflationary pressures and Fed’s aggressive rate hike policy to curb the same. The Fed is likely to announce a fourth successive 75 basis point rate hike in November as it indicated to bring the so-called terminal rate to 4.6% from the current range of 3-3.25%.
Investors await further clarity regarding the future interest rate path and its likely impact on the economy as concerns about recession refuse to abate. Meanwhile, the construction of new U.S. homes fell 8.1% in September to a seasonally adjusted annual pace of 1.44 million. As the U.S. Treasury yield continues its upward trajectory, the domestic stock market appears to be under severe strain.
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. Jabil Inc. (JBL - Free Report) , DICK'S Sporting Goods, Inc. (DKS - Free Report) , AGNC Investment Corp. (AGNC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) are some of the stocks with high ROE to profit from.
ROE: A Key Metric
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.
Parameters Used for Screening
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 13 stocks that qualified the screen:
Jabil: Headquartered in St. Petersburg, FL, Jabil is one of the largest global suppliers of electronic manufacturing services. The company offers electronics design, product management and after-market services to customers catering to aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, storage and telecommunications industries.
It delivered a trailing four-quarter earnings surprise of 9.3%, on average and has a long-term earnings growth expectation of 12%. Currently, Jabil sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
DICK'S Sporting Goods: In 1948, DICK’S Sporting Goods was founded in New York under the labels Dick's Clothing and Sporting Goods, Inc. The company operates as a major omni-channel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf, water sports, etc.
The company has a long-term earnings growth expectation of 5% and delivered a trailing four-quarter earnings surprise of 21.4%, on average. DICK’S Sporting Goods carries a Zacks Rank #2.
AGNC Investment: Previously known as American Capital Agency Corp., AGNC Investment is a real estate investment trust focused on leveraged investments in Agency residential mortgage-backed securities. That includes residential mortgage pass-through securities and collateralized mortgage obligations.
AGNC Investment adheres to an active portfolio-management policy, which includes re-evaluation and adjustment of its portfolio and hedges amid a varying interest rate and mortgage market environment. The company delivered a trailing four-quarter earnings surprise of 22.3%, on average. AGNC Investment carries a Zacks Rank #2.
JPMorgan: Headquartered in New York, JPMorgan is one of the biggest global banks with assets valued at $3.84 trillion and stockholders’ equity worth $286.1 billion as of Jun 30, 2022. With operations in more than 60 countries, the company is one of the largest financial service firms in the world.
The company has a long-term earnings growth expectation of 5% and delivered a trailing four-quarter earnings surprise of 2.6%, on average. JPMorgan carries a Zacks Rank #2.
Arch Capital: Established in 1995 and headquartered in Pembroke, Bermuda, Arch Capital offers insurance, reinsurance and mortgage insurance across the world. The company offers a full range of property, casualty and mortgage insurance and reinsurance lines while focusing on writing specialty lines of insurance and reinsurance.
Arch Capital has a long-term earnings growth expectation of 10% and delivered a trailing four-quarter earnings surprise of 33.6%, on average. ACGL carries a Zacks Rank #2.
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 Stocks With High ROE to Buy as Bond Yields Keep Rising
The U.S. equity markets witnessed a downtrend for the past few trading sessions despite a relatively healthy earnings performance from hitherto reported companies. The decline was largely triggered by the continued rise in bond yields, with the benchmark 10-year Treasury yield reaching a high of 4.239% - the highest since 2008. The rising bond yields have been an offshoot of high inflationary pressures and Fed’s aggressive rate hike policy to curb the same. The Fed is likely to announce a fourth successive 75 basis point rate hike in November as it indicated to bring the so-called terminal rate to 4.6% from the current range of 3-3.25%.
Investors await further clarity regarding the future interest rate path and its likely impact on the economy as concerns about recession refuse to abate. Meanwhile, the construction of new U.S. homes fell 8.1% in September to a seasonally adjusted annual pace of 1.44 million. As the U.S. Treasury yield continues its upward trajectory, the domestic stock market appears to be under severe strain.
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. Jabil Inc. (JBL - Free Report) , DICK'S Sporting Goods, Inc. (DKS - Free Report) , AGNC Investment Corp. (AGNC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) are some of the stocks with high ROE to profit from.
ROE: A Key Metric
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.
Parameters Used for Screening
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 13 stocks that qualified the screen:
Jabil: Headquartered in St. Petersburg, FL, Jabil is one of the largest global suppliers of electronic manufacturing services. The company offers electronics design, product management and after-market services to customers catering to aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, storage and telecommunications industries.
It delivered a trailing four-quarter earnings surprise of 9.3%, on average and has a long-term earnings growth expectation of 12%. Currently, Jabil sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
DICK'S Sporting Goods: In 1948, DICK’S Sporting Goods was founded in New York under the labels Dick's Clothing and Sporting Goods, Inc. The company operates as a major omni-channel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf, water sports, etc.
The company has a long-term earnings growth expectation of 5% and delivered a trailing four-quarter earnings surprise of 21.4%, on average. DICK’S Sporting Goods carries a Zacks Rank #2.
AGNC Investment: Previously known as American Capital Agency Corp., AGNC Investment is a real estate investment trust focused on leveraged investments in Agency residential mortgage-backed securities. That includes residential mortgage pass-through securities and collateralized mortgage obligations.
AGNC Investment adheres to an active portfolio-management policy, which includes re-evaluation and adjustment of its portfolio and hedges amid a varying interest rate and mortgage market environment. The company delivered a trailing four-quarter earnings surprise of 22.3%, on average. AGNC Investment carries a Zacks Rank #2.
JPMorgan: Headquartered in New York, JPMorgan is one of the biggest global banks with assets valued at $3.84 trillion and stockholders’ equity worth $286.1 billion as of Jun 30, 2022. With operations in more than 60 countries, the company is one of the largest financial service firms in the world.
The company has a long-term earnings growth expectation of 5% and delivered a trailing four-quarter earnings surprise of 2.6%, on average. JPMorgan carries a Zacks Rank #2.
Arch Capital: Established in 1995 and headquartered in Pembroke, Bermuda, Arch Capital offers insurance, reinsurance and mortgage insurance across the world. The company offers a full range of property, casualty and mortgage insurance and reinsurance lines while focusing on writing specialty lines of insurance and reinsurance.
Arch Capital has a long-term earnings growth expectation of 10% and delivered a trailing four-quarter earnings surprise of 33.6%, on average. ACGL carries a Zacks Rank #2.
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.