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5 Stocks With High ROE to Profit as Markets Perform Erratically
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Key Takeaways
The article spotlights high-ROE stocks as markets swing on rate-cut uncertainty.
The screen favors firms like TEL with strong cash flow and above-industry efficiency metrics.
Additional filters include low price-to-cash-flow, higher ROA, and solid 5-year EPS growth.
The broader equity market continued its erratic movement this week, leading to intense volatility and a likely change in the rate-cut narrative. While a blockbuster quarterly performance by AI behemoth NVIDIA propelled the market higher, latent concerns related to the increasing valuation of AI firms weighed on it. Despite a healthy earnings beat and upbeat guidance, NVIDIA stock euphoria waned gradually with apprehensions regarding an AI bubble. Industry experts widely expect that growth in AI firms will not be commensurate with hefty investments, leading to a market correction in the near term.
Moreover, investors remain worried about whether the Federal Reserve will lower its benchmark borrowing rate at its final meeting of the year next month. To add to the woes, the shutdown-delayed September jobs report showed that the economy added a higher-than-expected 119,000 jobs, further lowering rate cut expectations. 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, such as return on equity (ROE). A high ROE ensures that the company is reinvesting cash at a high rate of return. TE Connectivity plc (TEL - Free Report) , ZTO Express (Cayman) Inc. (ZTO - Free Report) , Corning Incorporated (GLW - Free Report) , Assurant, Inc. (AIZ - Free Report) and VICI Properties Inc. (VICI - 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 assets, 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 screening:
TE Connectivity: Based in Galway, Ireland, TE Connectivity is a global technology company that designs and manufactures connectivity and sensor solutions for a wide range of industries, including automotive, aerospace, defense, energy and medical. With operations in more than 130 countries, TE Connectivity focuses on emerging technologies such as 5G, electric vehicles, industrial automation and smart cities to position itself at the forefront of connectivity advancements.
The company has a long-term earnings growth expectation of 12.3% and delivered a trailing four-quarter earnings surprise of 6.5%, on average. TE Connectivity carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
ZTO Express: Founded in 2009, ZTO Express is a leading player in the field of express delivery in China. This Shanghai-based company went public in 2016. ZTO Express and its network partners provide domestic and international express delivery services. Other value-added services supplement the offerings. In China, it mainly focuses on providing express deliveries of parcels, which mostly weigh below 50 kilograms. The expected delivery time ranges from 24 to 72 hours.
ZTO Express carries a Zacks Rank #2. The company has a long-term earnings growth expectation of 1.7%.
Corning: New York-based Corning started out as a glass business that was reincorporated in 1936. The company has since developed its glass technologies to produce advanced glass substrates used in a wide range of applications across various markets. Corning’s competitive strength lies in its focus on innovation.
The company has a long-term earnings growth expectation of 18.2% and delivered a trailing four-quarter earnings surprise of 4.1%, on average. Corning carries a Zacks Rank #2.
Assurant: Headquartered in New York, Assurant is a global provider of risk management solutions in the housing and lifestyle markets, protecting where people live and the goods they buy. The company operates in North America, Latin America, Europe and the Asia Pacific.
The company has delivered a trailing four-quarter earnings surprise of 22.7%, on average. Assurant carries a Zacks Rank #2.
VICI Properties: New York-based VICI Properties is an experiential real estate investment trust (REIT) engaged in the business of owning and acquiring gaming, hospitality and entertainment destinations. The geographically diverse portfolio comprises approximately 127 million square feet of space, encompassing around 60,300 hotel rooms and more than 500 restaurants, bars, nightclubs and sportsbooks.
VICI properties has a long-term earnings growth expectation of 4.2% and delivered a trailing four-quarter earnings surprise of 0.4%, on average. Vici Properties 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.
Image: Bigstock
5 Stocks With High ROE to Profit as Markets Perform Erratically
Key Takeaways
The broader equity market continued its erratic movement this week, leading to intense volatility and a likely change in the rate-cut narrative. While a blockbuster quarterly performance by AI behemoth NVIDIA propelled the market higher, latent concerns related to the increasing valuation of AI firms weighed on it. Despite a healthy earnings beat and upbeat guidance, NVIDIA stock euphoria waned gradually with apprehensions regarding an AI bubble. Industry experts widely expect that growth in AI firms will not be commensurate with hefty investments, leading to a market correction in the near term.
Moreover, investors remain worried about whether the Federal Reserve will lower its benchmark borrowing rate at its final meeting of the year next month. To add to the woes, the shutdown-delayed September jobs report showed that the economy added a higher-than-expected 119,000 jobs, further lowering rate cut expectations. 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, such as return on equity (ROE). A high ROE ensures that the company is reinvesting cash at a high rate of return. TE Connectivity plc (TEL - Free Report) , ZTO Express (Cayman) Inc. (ZTO - Free Report) , Corning Incorporated (GLW - Free Report) , Assurant, Inc. (AIZ - Free Report) and VICI Properties Inc. (VICI - 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 assets, 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 screening:
TE Connectivity: Based in Galway, Ireland, TE Connectivity is a global technology company that designs and manufactures connectivity and sensor solutions for a wide range of industries, including automotive, aerospace, defense, energy and medical. With operations in more than 130 countries, TE Connectivity focuses on emerging technologies such as 5G, electric vehicles, industrial automation and smart cities to position itself at the forefront of connectivity advancements.
The company has a long-term earnings growth expectation of 12.3% and delivered a trailing four-quarter earnings surprise of 6.5%, on average. TE Connectivity carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
ZTO Express: Founded in 2009, ZTO Express is a leading player in the field of express delivery in China. This Shanghai-based company went public in 2016. ZTO Express and its network partners provide domestic and international express delivery services. Other value-added services supplement the offerings. In China, it mainly focuses on providing express deliveries of parcels, which mostly weigh below 50 kilograms. The expected delivery time ranges from 24 to 72 hours.
ZTO Express carries a Zacks Rank #2. The company has a long-term earnings growth expectation of 1.7%.
Corning: New York-based Corning started out as a glass business that was reincorporated in 1936. The company has since developed its glass technologies to produce advanced glass substrates used in a wide range of applications across various markets. Corning’s competitive strength lies in its focus on innovation.
The company has a long-term earnings growth expectation of 18.2% and delivered a trailing four-quarter earnings surprise of 4.1%, on average. Corning carries a Zacks Rank #2.
Assurant: Headquartered in New York, Assurant is a global provider of risk management solutions in the housing and lifestyle markets, protecting where people live and the goods they buy. The company operates in North America, Latin America, Europe and the Asia Pacific.
The company has delivered a trailing four-quarter earnings surprise of 22.7%, on average. Assurant carries a Zacks Rank #2.
VICI Properties: New York-based VICI Properties is an experiential real estate investment trust (REIT) engaged in the business of owning and acquiring gaming, hospitality and entertainment destinations. The geographically diverse portfolio comprises approximately 127 million square feet of space, encompassing around 60,300 hotel rooms and more than 500 restaurants, bars, nightclubs and sportsbooks.
VICI properties has a long-term earnings growth expectation of 4.2% and delivered a trailing four-quarter earnings surprise of 0.4%, on average. Vici Properties 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.