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5 Stocks With High ROE to Buy as Markets Appear Topsy-Turvy
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The U.S. equity markets are witnessing intense volatility as a relatively modest start to the week was apparently negated by concerns that more interest rate hikes are around the corner. The downtrend was further triggered by the rising 10-year Treasury yield, which hit its highest level since 2007 on Monday, reaching 4.35%, before settling at 4.21% yesterday. This restored the equity markets’ growth momentum as investors awaited the latest quarterly results of technology behemoth Nvidia.
Despite signs of a resilient economy, with the personal consumption expenditures price index rising 2.6% in the second quarter, moderating inflation and solid corporate earnings, markets appear to be under “constructive rotation.” However, investors have broadly taken the decline in stride as fundamental views about the economy, in general, remain relatively strong.
The focus has now shifted to the Fed’s Sep 19-20 policy meeting. This will likely be another market catalyst, with investors looking for cues about the broader economy and the trajectory of future interest rate hikes.
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. ON Semiconductor Corporation (ON - Free Report) , Suzano S.A. (SUZ - Free Report) , Ryder System, Inc. (R - Free Report) , Upbound Group, Inc. (UPBD - Free Report) and América Móvil, S.A.B. de C.V. (AMX - Free Report) are some of the stocks with high ROE to profit from.
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.
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 16 stocks that qualified the screening:
ON Semiconductor: Phoenix, AZ-based onsemi is an original equipment manufacturer of a broad range of discrete and embedded semiconductor components. The company has a very well-diversified business. onsemi generates a significant percentage of revenues from each of the computing, consumer, industrial, communications and automotive markets.
The stock has a long-term earnings growth expectation of 7.5% and delivered a trailing four-quarter earnings surprise of 8.7%, on average. onsemi carries a Zacks Rank #2. 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 10.4%, on average. It has a VGM Score of A. It carries a Zacks Rank #2.
Ryder: Florida-based Ryder is recognized as one of the world's largest providers of integrated logistics and transportation solutions. Ryder’s customers range from small businesses to large international enterprises. They are drawn from a wide variety of industries, the most significant of which are automotive, electronics, transportation, grocery, lumber and wood products, food service and home furnishing.
Ryder sports a Zacks Rank #1. It delivered a trailing four-quarter earnings surprise of 11.2%, on average. It has a VGM Score of A.
Upbound Group: Headquartered in Plano, TX, Upbound Group (formerly Rent-A-Center, Inc.) is a leading lease-to-own provider with operations in the United States, Puerto Rico and Mexico. The company provides services to a large portion of consumers by providing them access and the opportunity to obtain ownership of high-quality, durable products under a flexible lease purchase agreement with no long-term debt obligation.
The company delivered a trailing four-quarter earnings surprise of 25.8%, on average. It has a VGM Score of B. Upbound Group sports a Zacks Rank #1.
América Móvil: Based in Mexico City, America Movil is the leading provider of integrated telecommunications services in Latin America. It offers enhanced communication solutions in 25 countries in Latin America, the United States and Central and Eastern Europe.
The company has a long-term earnings growth expectation of 7.9% and delivered a trailing four-quarter earnings surprise of 15.3%, on average. America Movil carries a Zacks Rank #2. It has a VGM Score of A.
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 Markets Appear Topsy-Turvy
The U.S. equity markets are witnessing intense volatility as a relatively modest start to the week was apparently negated by concerns that more interest rate hikes are around the corner. The downtrend was further triggered by the rising 10-year Treasury yield, which hit its highest level since 2007 on Monday, reaching 4.35%, before settling at 4.21% yesterday. This restored the equity markets’ growth momentum as investors awaited the latest quarterly results of technology behemoth Nvidia.
Despite signs of a resilient economy, with the personal consumption expenditures price index rising 2.6% in the second quarter, moderating inflation and solid corporate earnings, markets appear to be under “constructive rotation.” However, investors have broadly taken the decline in stride as fundamental views about the economy, in general, remain relatively strong.
The focus has now shifted to the Fed’s Sep 19-20 policy meeting. This will likely be another market catalyst, with investors looking for cues about the broader economy and the trajectory of future interest rate hikes.
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. ON Semiconductor Corporation (ON - Free Report) , Suzano S.A. (SUZ - Free Report) , Ryder System, Inc. (R - Free Report) , Upbound Group, Inc. (UPBD - Free Report) and América Móvil, S.A.B. de C.V. (AMX - Free Report) are some of the stocks with high ROE to profit from.
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.
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 16 stocks that qualified the screening:
ON Semiconductor: Phoenix, AZ-based onsemi is an original equipment manufacturer of a broad range of discrete and embedded semiconductor components. The company has a very well-diversified business. onsemi generates a significant percentage of revenues from each of the computing, consumer, industrial, communications and automotive markets.
The stock has a long-term earnings growth expectation of 7.5% and delivered a trailing four-quarter earnings surprise of 8.7%, on average. onsemi carries a Zacks Rank #2. 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 10.4%, on average. It has a VGM Score of A. It carries a Zacks Rank #2.
Ryder: Florida-based Ryder is recognized as one of the world's largest providers of integrated logistics and transportation solutions. Ryder’s customers range from small businesses to large international enterprises. They are drawn from a wide variety of industries, the most significant of which are automotive, electronics, transportation, grocery, lumber and wood products, food service and home furnishing.
Ryder sports a Zacks Rank #1. It delivered a trailing four-quarter earnings surprise of 11.2%, on average. It has a VGM Score of A.
Upbound Group: Headquartered in Plano, TX, Upbound Group (formerly Rent-A-Center, Inc.) is a leading lease-to-own provider with operations in the United States, Puerto Rico and Mexico. The company provides services to a large portion of consumers by providing them access and the opportunity to obtain ownership of high-quality, durable products under a flexible lease purchase agreement with no long-term debt obligation.
The company delivered a trailing four-quarter earnings surprise of 25.8%, on average. It has a VGM Score of B. Upbound Group sports a Zacks Rank #1.
América Móvil: Based in Mexico City, America Movil is the leading provider of integrated telecommunications services in Latin America. It offers enhanced communication solutions in 25 countries in Latin America, the United States and Central and Eastern Europe.
The company has a long-term earnings growth expectation of 7.9% and delivered a trailing four-quarter earnings surprise of 15.3%, on average. America Movil carries a Zacks Rank #2. It has a VGM Score of A.
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.