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5 Stocks With High ROE to Buy as Markets Await Fed Rate Cut Decision
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Key Takeaways
Markets rally on rising expectations of a Fed rate cut, despite pressure from Treasury yields.
Stocks with high ROE and strong cash flow like TEL, ZTO, PPC, AIZ, and HST passed key screening filters.
These picks also feature solid earnings surprises, strong growth outlooks, and favorable valuation metrics.
After a tentative start to the month, the broader equity markets witnessed a four-day winning streak last week as the odds of the Federal Reserve lowering its benchmark borrowing rate at its final meeting of the year later this week significantly increased. Markets are currently pricing a roughly 89% chance of a rate cut, significantly up from 67% expected a month ago. However, the surging 10-year Treasury yield punctured the short-term market rally yesterday as skepticism crept in with the recent release of key economic data.
The shutdown-delayed core personal consumption expenditures price index from the Commerce Department for September revealed an annual tally of 2.8% ??? slightly lower than broad-based expectations of a 2.9% increase. The U.S. consumer sentiment improved in December, with the Consumer Sentiment Index (per the University of Michigan's survey) rising to 53.3 from 51 in November. 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) , Pilgrim's Pride Corporation (PPC - Free Report) , Assurant, Inc. (AIZ - Free Report) and Host Hotels & Resorts, Inc. (HST - 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 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 12 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%. It delivered a trailing four-quarter earnings surprise of 6.5%, on average. It has a VGM Score of A. 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 sports a Zacks Rank #1. The company has a long-term earnings growth expectation of 1.7%.
Pilgrim's Pride: Greeley, CO-based Pilgrim's Pride is engaged in the processing, production, marketing and distribution of frozen, fresh and value-added chicken products. The company offers its services in the United States, Mexico, France, the Netherlands, Puerto Rico and Mexico through several distributors, retailers and food service operators.
The company delivered a trailing four-quarter earnings surprise of 10.4%, on average. Pilgrim's Pride carries a Zacks Rank #2. It has a VGM Score of A.
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.
It delivered a trailing four-quarter earnings surprise of 22.7%, on average. Assurant carries a Zacks Rank #2. It has a VGM Score of A.
Host Hotels: Bethesda, MD-based Host Hotels, one of the leading lodging real estate investment trusts (REITs), engages in the ownership, acquisition and redevelopment of luxury and upper-upscale hotels in the United States and abroad. Its properties are positioned mainly in growing markets in the United States and globally and include premium brands, such as Marriott, Westin, Ritz-Carlton, Hyatt, Sheraton, W, St. Regis, The Luxury Collection, Fairmont, Four Seasons, Swissôtel, ibis, 1 Hotels, Novotel and Hilton.
Host Hotels delivered a trailing four-quarter earnings surprise of 11%, on average. Host Hotels 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.
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5 Stocks With High ROE to Buy as Markets Await Fed Rate Cut Decision
Key Takeaways
After a tentative start to the month, the broader equity markets witnessed a four-day winning streak last week as the odds of the Federal Reserve lowering its benchmark borrowing rate at its final meeting of the year later this week significantly increased. Markets are currently pricing a roughly 89% chance of a rate cut, significantly up from 67% expected a month ago. However, the surging 10-year Treasury yield punctured the short-term market rally yesterday as skepticism crept in with the recent release of key economic data.
The shutdown-delayed core personal consumption expenditures price index from the Commerce Department for September revealed an annual tally of 2.8% ??? slightly lower than broad-based expectations of a 2.9% increase. The U.S. consumer sentiment improved in December, with the Consumer Sentiment Index (per the University of Michigan's survey) rising to 53.3 from 51 in November. 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) , Pilgrim's Pride Corporation (PPC - Free Report) , Assurant, Inc. (AIZ - Free Report) and Host Hotels & Resorts, Inc. (HST - 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 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 12 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%. It delivered a trailing four-quarter earnings surprise of 6.5%, on average. It has a VGM Score of A. 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 sports a Zacks Rank #1. The company has a long-term earnings growth expectation of 1.7%.
Pilgrim's Pride: Greeley, CO-based Pilgrim's Pride is engaged in the processing, production, marketing and distribution of frozen, fresh and value-added chicken products. The company offers its services in the United States, Mexico, France, the Netherlands, Puerto Rico and Mexico through several distributors, retailers and food service operators.
The company delivered a trailing four-quarter earnings surprise of 10.4%, on average. Pilgrim's Pride carries a Zacks Rank #2. It has a VGM Score of A.
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.
It delivered a trailing four-quarter earnings surprise of 22.7%, on average. Assurant carries a Zacks Rank #2. It has a VGM Score of A.
Host Hotels: Bethesda, MD-based Host Hotels, one of the leading lodging real estate investment trusts (REITs), engages in the ownership, acquisition and redevelopment of luxury and upper-upscale hotels in the United States and abroad. Its properties are positioned mainly in growing markets in the United States and globally and include premium brands, such as Marriott, Westin, Ritz-Carlton, Hyatt, Sheraton, W, St. Regis, The Luxury Collection, Fairmont, Four Seasons, Swissôtel, ibis, 1 Hotels, Novotel and Hilton.
Host Hotels delivered a trailing four-quarter earnings surprise of 11%, on average. Host Hotels 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.