The broader equity markets appeared to be on a slippery track as surging oil prices primarily led to a steady downtrend over the past few days. Oil prices had been soaring high as traffic in the critical shipping route had halted since the war between Iran and Israel, backed by the United States, began. Although President Trump aimed to soothe frayed investor nerves by extending the deadline to initiate a deadly attack on Iran’s energy infrastructure to April 6, the Iranian government indicated that they had no intention of brokering any truce deal with the United States.  Various media reports suggested that the Pentagon is considering amplifying its military presence in the region to seek a resolution to this impasse. 

Amid contradictory narratives, some media reports have even cited Trump’s willingness to end the war if the stalemate at the Strait of Hormuz continues beyond the set timeline of four to six weeks and seek diplomatic channels at a later date to resume the free flow of trade. 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. Ross Stores, Inc. (ROST Quick QuoteROST - Free Report) , Globe Life Inc. (GL Quick QuoteGL - Free Report) , Broadcom Inc. (AVGO Quick QuoteAVGO - Free Report) , Corning Incorporated (GLW Quick QuoteGLW - Free Report) and Constellation Brands, Inc. (STZ Quick QuoteSTZ - 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 less 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 11 stocks that qualified the screening:

Ross: Based in Dublin, CA, Ross is an off-price retailer of apparel and home accessories, offering in-season, branded and designer apparel, footwear, accessories and other home-related merchandise. Operating primarily in the United States, it targets middle-income households, keeping prices at generally 20% to 60% below the regular prices of most department and specialty stores. 

The company has a long-term earnings growth expectation of 10% and delivered a trailing four-quarter earnings surprise of 6.2%, on average. It has a VGM Score of B. Ross carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here. 

Globe Life: Based in McKinney, TX, Globe Life is a holding company for a group of insurance companies that primarily market individual life and supplemental health insurance to lower-middle to middle-income households throughout the United States. Globe Life's insurance subsidiaries write a variety of nonparticipating ordinary life insurance products, which include traditional whole life, term life and other life insurance. 

It also offers Medicare Supplement and limited-benefit supplemental health insurance products that primarily include critical illness and accident plans. Globe Life carries a Zacks Rank #2. 

Broadcom: Headquartered in San Jose, CA, Broadcom develops a broad range of semiconductor solutions for enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays.

The company has a long-term earnings growth expectation of 48.6%. It delivered a trailing four-quarter earnings surprise of 1.9%, on average. Broadcom currently sports a Zacks Rank #1.   

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 20.5%. It delivered a trailing four-quarter earnings surprise of 4.4%, on average. Corning carries a Zacks Rank #2 at present. 

Constellation Brands: Headquartered in Victor, NY, Constellation Brands produces and markets beer, wine and spirits. It is the third-largest beer company and a leading, high-end wine company in the United States. It has a strong portfolio of high-quality brands, including Corona, Modelo Especial, Robert Mondavi, Kim Crawford, Meiomi and SVEDKA Vodka. The company conducts its operations in the United States, Mexico, Italy and New Zealand. 

The company has a long-term earnings growth expectation of 28.9%. It delivered a trailing four-quarter earnings surprise of 8.6%, on average. Constellation Brands currently carries a Zacks Rank #2.