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5 High-ROE Stocks to Buy as Markets End 2023 on a Solid Note
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Despite intense market volatility triggered by geopolitical tensions led by the Russia-Ukraine war and the Isarel-Hamas conflict along with the regional banking crisis, the U.S. equity markets ended 2023 on a high, registering the ninth straight weekly advance in a row – the longest winning streak since 2004.
The uptrend was largely buoyed by the Federal Reserve’s decision to hold interest rates steady in the 5.25% to 5.5% range while pledging to cut the same several times next year. The much-anticipated acknowledgment of a decelerating inflation trend lifted the leading benchmark indices and took them closer to all-time highs. This, in turn, hastened the plunge of 10-year Treasury yield from above 5% in late October to less than 3.9% by year-end 2023.
The November non-farm payrolls report further showed that the jobless rate fell to 3.7% from 3.9% in the prior month. The economy added 199,000 jobs compared with 150,000 job additions in October, signifying economic strength. The consumer price index was up 3.1% in November on a year-over-year basis and 0.1% month over month. The latest GDP data also revealed that the economy grew in the third quarter at a stronger-than-forecast annual rate of 5.2%.
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. NRG Energy, Inc. (NRG - Free Report) , Carlisle Companies Incorporated (CSL - Free Report) , Arch Resources, Inc. (ARCH - Free Report) , Cboe Global Markets, Inc. (CBOE - 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.
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 18 stocks that qualified the screening:
NRG Energy: Headquarters in Houston, TX, NRG Energy is engaged in the production, sale and delivery of energy and energy products and services to residential, industrial and commercial consumers in major competitive power markets in the United States. The company also provides system power, distributed generation, renewable products, backup generation, energy efficiency and advisory services, as well as carbon management and specialty services.
The stock has a long-term earnings growth expectation of 13.8% and delivered a trailing four-quarter earnings surprise of 4.7%, on average. NRG Energy sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Carlisle: Based in Scottsdale, AZ, Carlisle is a diversified, global portfolio of niche brands and businesses with highly engineered and high-margin products. It engages in the design, manufacture and sale of a wide range of roofing and waterproofing products, engineered products and finishing equipment.
Carlisle has a long-term earnings growth expectation of 15% and delivered a trailing four-quarter earnings surprise of 2.9%, on average. It carries a Zacks Rank #2.
Arch Resources: St. Louis, MO-based Arch Resources is one of the largest coal producers in the United States, operating nine mines across the major coal basins of the country. The prime location of its mines and easy access to export facilities enable the company to ship coal worldwide.
Arch Resources delivered a trailing four-quarter earnings surprise of 24.5%, on average. It has a VGM Score of A. It sports a Zacks Rank #1.
Cboe Global Markets: Based in Chicago, IL, Cboe Global Markets is one of the largest stock exchange operators by volume in the United States and a leading market globally for ETP trading. It offers trading across a diverse range of products in multiple asset classes and geographies, including options, futures, U.S. and European equities, ETPs, global foreign exchange and multi-asset volatility products based on the VIX Index.
The company has a long-term earnings growth expectation of 10.2% and delivered a trailing four-quarter earnings surprise of 4.1%, on average. Cboe Global Markets sports a Zacks Rank #1.
Arch Capital: Headquartered in Pembroke, Bermuda, Arch Capital offers insurance, reinsurance and mortgage insurance across the world. It provides a wide range of products and services, which include primary and excess casualty coverages, professional indemnity, workers’ compensation and umbrella liability and employers’ liability insurance coverages. The company offers a full range of property, casualty and mortgage insurance and reinsurance lines while maintaining a focus on writing specialty lines of insurance and reinsurance.
Arch Capital carries a Zacks Rank #2. It has a long-term earnings growth expectation of 10%. It delivered a trailing four-quarter earnings surprise of 35.2%, on average. 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.
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5 High-ROE Stocks to Buy as Markets End 2023 on a Solid Note
Despite intense market volatility triggered by geopolitical tensions led by the Russia-Ukraine war and the Isarel-Hamas conflict along with the regional banking crisis, the U.S. equity markets ended 2023 on a high, registering the ninth straight weekly advance in a row – the longest winning streak since 2004.
The uptrend was largely buoyed by the Federal Reserve’s decision to hold interest rates steady in the 5.25% to 5.5% range while pledging to cut the same several times next year. The much-anticipated acknowledgment of a decelerating inflation trend lifted the leading benchmark indices and took them closer to all-time highs. This, in turn, hastened the plunge of 10-year Treasury yield from above 5% in late October to less than 3.9% by year-end 2023.
The November non-farm payrolls report further showed that the jobless rate fell to 3.7% from 3.9% in the prior month. The economy added 199,000 jobs compared with 150,000 job additions in October, signifying economic strength. The consumer price index was up 3.1% in November on a year-over-year basis and 0.1% month over month. The latest GDP data also revealed that the economy grew in the third quarter at a stronger-than-forecast annual rate of 5.2%.
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. NRG Energy, Inc. (NRG - Free Report) , Carlisle Companies Incorporated (CSL - Free Report) , Arch Resources, Inc. (ARCH - Free Report) , Cboe Global Markets, Inc. (CBOE - 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.
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 18 stocks that qualified the screening:
NRG Energy: Headquarters in Houston, TX, NRG Energy is engaged in the production, sale and delivery of energy and energy products and services to residential, industrial and commercial consumers in major competitive power markets in the United States. The company also provides system power, distributed generation, renewable products, backup generation, energy efficiency and advisory services, as well as carbon management and specialty services.
The stock has a long-term earnings growth expectation of 13.8% and delivered a trailing four-quarter earnings surprise of 4.7%, on average. NRG Energy sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Carlisle: Based in Scottsdale, AZ, Carlisle is a diversified, global portfolio of niche brands and businesses with highly engineered and high-margin products. It engages in the design, manufacture and sale of a wide range of roofing and waterproofing products, engineered products and finishing equipment.
Carlisle has a long-term earnings growth expectation of 15% and delivered a trailing four-quarter earnings surprise of 2.9%, on average. It carries a Zacks Rank #2.
Arch Resources: St. Louis, MO-based Arch Resources is one of the largest coal producers in the United States, operating nine mines across the major coal basins of the country. The prime location of its mines and easy access to export facilities enable the company to ship coal worldwide.
Arch Resources delivered a trailing four-quarter earnings surprise of 24.5%, on average. It has a VGM Score of A. It sports a Zacks Rank #1.
Cboe Global Markets: Based in Chicago, IL, Cboe Global Markets is one of the largest stock exchange operators by volume in the United States and a leading market globally for ETP trading. It offers trading across a diverse range of products in multiple asset classes and geographies, including options, futures, U.S. and European equities, ETPs, global foreign exchange and multi-asset volatility products based on the VIX Index.
The company has a long-term earnings growth expectation of 10.2% and delivered a trailing four-quarter earnings surprise of 4.1%, on average. Cboe Global Markets sports a Zacks Rank #1.
Arch Capital: Headquartered in Pembroke, Bermuda, Arch Capital offers insurance, reinsurance and mortgage insurance across the world. It provides a wide range of products and services, which include primary and excess casualty coverages, professional indemnity, workers’ compensation and umbrella liability and employers’ liability insurance coverages. The company offers a full range of property, casualty and mortgage insurance and reinsurance lines while maintaining a focus on writing specialty lines of insurance and reinsurance.
Arch Capital carries a Zacks Rank #2. It has a long-term earnings growth expectation of 10%. It delivered a trailing four-quarter earnings surprise of 35.2%, on average. 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.
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.