The broader equity markets witnessed a downtrend over the past three consecutive trading days after a dream run over the past week. The driving force on both occasions was the tech sector, which triggered record highs last week on renewed enthusiasm in the AI trade. However, as profit booking gained pace, tech stocks slumped and bond yields rose significantly to pressure the overall equity market. The 30-year Treasury yield reached a high of 5.19% – the highest level in nearly 19 years, and the 10-year Treasury note yield rose to 4.687% – the highest level since January 2025. 

To add to the woes, a hotter-than-expected U.S. consumer inflation data for April revealed that wholesale inflation gained 6% on an annual basis — the largest increase since December 2022 — and the consumer price index soared 0.6%, putting the annual inflation rate at 3.8%.

The continuation of the Iran blockade and restrictions in the Strait of Hormuz compounded the stock market misery, as oil prices went up steadily, with uncertainty being the order of the day. 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) , TE Connectivity plc (TEL Quick QuoteTEL - Free Report) , Broadcom Inc. (AVGO Quick QuoteAVGO - Free Report) , ConocoPhillips (COP Quick QuoteCOP - Free Report) and Arista Networks, Inc. (ANET Quick QuoteANET - 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 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 15 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 10.3% and delivered a trailing four-quarter earnings surprise of 6.2%, on average. Ross carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here. 

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 12.5%. It delivered a trailing four-quarter earnings surprise of 6%, on average. TE Connectivity 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 carries a Zacks Rank #2. 

ConocoPhillips: Headquartered in Houston, TX, ConocoPhillips is primarily involved in the exploration and production of oil and natural gas. Considering proved reserves and production, the company is among the largest explorers and producers in the world. The company, founded in 1875, has a strong presence across conventional and unconventional plays in 13 countries. ConocoPhillips’ low-risk and cost-effective operations are spread across North America, Asia, Australia and Europe. 

The company has a long-term earnings growth expectation of 9%. It delivered a trailing four-quarter earnings surprise of 5.8%, on average. ConocoPhillips carries a Zacks Rank #2 at present. 

Arista: Santa Clara, CA-based Arista is engaged in providing cloud networking solutions for data centers and cloud computing environments. The company holds a leadership position in 100-gigabit Ethernet switching for the high-speed datacenter segment. It is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations. 

The company has a long-term earnings growth expectation of 19.9%. It delivered a trailing four-quarter earnings surprise of 8.3%, on average. Arista carries a Zacks Rank #2.