We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 High ROE Stocks to Buy as Markets Dip on Inflation Worry
Read MoreHide Full Article
Over the past few trading days, the broader U.S. equity markets witnessed a downtrend owing to higher-than-expected inflation data. Per the latest reports, the consumer price index increased 0.3% in December month over month and 3.4% on a year-over-year basis compared with broader expectations of a 0.2% and 3.2% rise, respectively, primarily due to higher rents and food prices. This portrays that the Federal Reserve’s efforts to slow down inflation to its 2% target will likely remain bumpy in the year ahead.
Earlier, the Fed had pledged to cut interest rates several times in 2024 owing to a decelerating inflation trend in the later stages of 2023. However, the Fed might revert to its rate hike policy should inflation witness an uptrend in the near future. This, in turn, signifies that the markets need to brace for intense volatility owing to tempered expectations. To add to the woes, Federal Reserve Governor Christopher Waller has indicated that the easing of monetary policy might come slower than anticipated, propelling the 10-year Treasury yields.
The 10-year Treasury yield has moved up in excess of 4% despite solid fourth-quarter earnings performance from hitherto reported companies and relatively modest economic data. The December non-farm payrolls report showed that the jobless rate held steady at 3.7%, while the economy added 216,000 jobs compared with 173,000 revised job additions in November, signifying economic strength. The latest GDP data projections also reveal that the economy is likely to grow at a healthy pace in the fourth quarter.
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) , Suzano S.A. (SUZ - 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.
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 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.
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.
The company offers coated and uncoated printing and writing papers, paperboards, tissue papers and lignin. Suzano 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 regions, 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 12.8% and delivered a trailing four-quarter earnings surprise of 4.1%, on average. Cboe Global Markets carries a Zacks Rank #2.
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.
Image: Bigstock
5 High ROE Stocks to Buy as Markets Dip on Inflation Worry
Over the past few trading days, the broader U.S. equity markets witnessed a downtrend owing to higher-than-expected inflation data. Per the latest reports, the consumer price index increased 0.3% in December month over month and 3.4% on a year-over-year basis compared with broader expectations of a 0.2% and 3.2% rise, respectively, primarily due to higher rents and food prices. This portrays that the Federal Reserve’s efforts to slow down inflation to its 2% target will likely remain bumpy in the year ahead.
Earlier, the Fed had pledged to cut interest rates several times in 2024 owing to a decelerating inflation trend in the later stages of 2023. However, the Fed might revert to its rate hike policy should inflation witness an uptrend in the near future. This, in turn, signifies that the markets need to brace for intense volatility owing to tempered expectations. To add to the woes, Federal Reserve Governor Christopher Waller has indicated that the easing of monetary policy might come slower than anticipated, propelling the 10-year Treasury yields.
The 10-year Treasury yield has moved up in excess of 4% despite solid fourth-quarter earnings performance from hitherto reported companies and relatively modest economic data. The December non-farm payrolls report showed that the jobless rate held steady at 3.7%, while the economy added 216,000 jobs compared with 173,000 revised job additions in November, signifying economic strength. The latest GDP data projections also reveal that the economy is likely to grow at a healthy pace in the fourth quarter.
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) , Suzano S.A. (SUZ - 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.
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 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.
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.
The company offers coated and uncoated printing and writing papers, paperboards, tissue papers and lignin. Suzano 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 regions, 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 12.8% and delivered a trailing four-quarter earnings surprise of 4.1%, on average. Cboe Global Markets carries a Zacks Rank #2.
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.