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Buy 5 High ROE Stocks as Market Rally Skids on New Jobs Data
After a spate of solid performances recently, the U.S. equity market witnessed a sudden downtrend in the middle of a holiday-shortened week, courtesy investors' broad-based concerns regarding the state of the overall economy and the trajectory of interest rate hikes. The decline was largely triggered by better-than-expected jobs data from payroll processing firm ADP, which fueled fears that the Federal Reserve will likely resume its aggressive rate hike regime. Although the ADP data is often considered unreliable and more volatile than other employment data, it has caused quite a stir ahead of the official June payroll report due today.
The equity market rally was primarily driven by the Fed's decision to hit a pause button for the rate hike program owing to a slowdown in inflation and maintain a benchmark interest rate in the range of 5-5.25%. However, the minutes from the Jun 13-14 Fed meeting revealed that more rate hikes are in the cards to bring inflation close to the targeted 2% level.
The latest ADP jobs report seemed to incite these rate hike fears with private sector jobs increasing by 497,000 in June, significantly higher than broad-based expectations of a 220,000 rise. The more than two-fold increase has ratcheted up the fear factor that dragged the shares down. The focus has now shifted to the Fed's Jul 25-26 policy meeting, which is likely to be another potential market catalyst.
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. Dillard's, Inc., Suzano S.A., Atkore Inc., Nexstar Media Group, Inc. and AbbVie Inc. 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.
Here are five of the 11 stocks that qualified the screen:
Dillard's: Founded in 1938, Dillard's is a large departmental store chain featuring fashion apparel and home furnishings. Its merchandise mix consists of both branded and private-label items. The company's strategy is to offer more fashion-forward and trendy products to attract customers.
Dillard's is benefiting from continued momentum in consumer demand and better inventory management. The company delivered a trailing four-quarter earnings surprise of 110.4%, on average. DDS carries a Zacks Rank #2. It has a VGM Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.
Suzano: Headquartered in Salvador, Brazil, Suzano produces and sells eucalyptus pulp and paper products. With more than 90 years of experience, this vertically integrated firm is one of the largest producers of paper and graphic products in South America.
Suzano has a long-term earnings growth expectation of 6.9% and delivered a trailing four-quarter earnings surprise of 54.8%, on average. It has a VGM Score of B. It sports a Zacks Rank #1.
Atkore: Headquartered in Harvey, IL, Atkore offers conduits, cables and installation accessories in the United States and internationally. With a network of manufacturing and distribution facilities worldwide, Atkore is a leading provider of electrical, safety and infrastructure solutions.
Atkore carries a Zacks Rank #2. It delivered a trailing four-quarter earnings surprise of 16.3%, on average. It has a VGM Score of A.
Nexstar Media: Headquartered in Irving, TX, Nexstar Media is a leading diversified media firm that produces and distributes engaging local and national news, sports and entertainment content across television, streaming and digital platforms. It also offers premium multiplatform and video-on-demand advertising opportunities at scale for businesses and brands seeking to leverage its strong client base.
The company has a long-term earnings growth expectation of 10% and delivered a trailing four-quarter earnings surprise of 21.4%, on average. It has a VGM Score of B. Nexstar Media sports a Zacks Rank #1.
AbbVie: North Chicago, IL-based AbbVie has become one of the top-most pharma companies after it acquired Botox maker Allergan in a cash-and-stock deal for $63 billion in May 2020. The deal has transformed AbbVie's portfolio by lowering its dependence on Humira, its flagship product, which has lost patent protection in Europe and the United States.
The company has a long-term earnings growth expectation of 5% and delivered a trailing four-quarter earnings surprise of 1.8%, on average. AbbVie carries a Zacks Rank #2. It has a VGM Score of B.
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks.com featured highlights include Dillard's, Suzano, Atkore, Nexstar Media Group and AbbVie
For Immediate Release
Chicago, IL – July 10, 2023 – Stocks in this week’s article are Dillard's, Inc. (DDS - Free Report) , Suzano S.A. (SUZ - Free Report) , Atkore Inc. (ATKR - Free Report) , Nexstar Media Group, Inc. (NXST - Free Report) and AbbVie Inc. (ABBV - Free Report) .
Buy 5 High ROE Stocks as Market Rally Skids on New Jobs Data
After a spate of solid performances recently, the U.S. equity market witnessed a sudden downtrend in the middle of a holiday-shortened week, courtesy investors' broad-based concerns regarding the state of the overall economy and the trajectory of interest rate hikes. The decline was largely triggered by better-than-expected jobs data from payroll processing firm ADP, which fueled fears that the Federal Reserve will likely resume its aggressive rate hike regime. Although the ADP data is often considered unreliable and more volatile than other employment data, it has caused quite a stir ahead of the official June payroll report due today.
The equity market rally was primarily driven by the Fed's decision to hit a pause button for the rate hike program owing to a slowdown in inflation and maintain a benchmark interest rate in the range of 5-5.25%. However, the minutes from the Jun 13-14 Fed meeting revealed that more rate hikes are in the cards to bring inflation close to the targeted 2% level.
The latest ADP jobs report seemed to incite these rate hike fears with private sector jobs increasing by 497,000 in June, significantly higher than broad-based expectations of a 220,000 rise. The more than two-fold increase has ratcheted up the fear factor that dragged the shares down. The focus has now shifted to the Fed's Jul 25-26 policy meeting, which is likely to be another potential market catalyst.
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. Dillard's, Inc., Suzano S.A., Atkore Inc., Nexstar Media Group, Inc. and AbbVie Inc. 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.
Here are five of the 11 stocks that qualified the screen:
Dillard's: Founded in 1938, Dillard's is a large departmental store chain featuring fashion apparel and home furnishings. Its merchandise mix consists of both branded and private-label items. The company's strategy is to offer more fashion-forward and trendy products to attract customers.
Dillard's is benefiting from continued momentum in consumer demand and better inventory management. The company delivered a trailing four-quarter earnings surprise of 110.4%, on average. DDS carries a Zacks Rank #2. It has a VGM Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.
Suzano: Headquartered in Salvador, Brazil, Suzano produces and sells eucalyptus pulp and paper products. With more than 90 years of experience, this vertically integrated firm is one of the largest producers of paper and graphic products in South America.
Suzano has a long-term earnings growth expectation of 6.9% and delivered a trailing four-quarter earnings surprise of 54.8%, on average. It has a VGM Score of B. It sports a Zacks Rank #1.
Atkore: Headquartered in Harvey, IL, Atkore offers conduits, cables and installation accessories in the United States and internationally. With a network of manufacturing and distribution facilities worldwide, Atkore is a leading provider of electrical, safety and infrastructure solutions.
Atkore carries a Zacks Rank #2. It delivered a trailing four-quarter earnings surprise of 16.3%, on average. It has a VGM Score of A.
Nexstar Media: Headquartered in Irving, TX, Nexstar Media is a leading diversified media firm that produces and distributes engaging local and national news, sports and entertainment content across television, streaming and digital platforms. It also offers premium multiplatform and video-on-demand advertising opportunities at scale for businesses and brands seeking to leverage its strong client base.
The company has a long-term earnings growth expectation of 10% and delivered a trailing four-quarter earnings surprise of 21.4%, on average. It has a VGM Score of B. Nexstar Media sports a Zacks Rank #1.
AbbVie: North Chicago, IL-based AbbVie has become one of the top-most pharma companies after it acquired Botox maker Allergan in a cash-and-stock deal for $63 billion in May 2020. The deal has transformed AbbVie's portfolio by lowering its dependence on Humira, its flagship product, which has lost patent protection in Europe and the United States.
The company has a long-term earnings growth expectation of 5% and delivered a trailing four-quarter earnings surprise of 1.8%, on average. AbbVie carries a Zacks Rank #2. It has a VGM Score of B.
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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2118019/buy-5-high-roe-stocks-as-market-rally-skids-on-adp-jobs-data
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Contact: Jim Giaquinto
Company: Zacks.com
Phone: 312-265-9268
Email: pr@zacks.com
Visit: https://www.zacks.com/
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.