For Immediate Release
Chicago, IL – August 9, 2018 - Stocks in this week’s article include: Marine Products Corporation (MPX - Free Report) , American Eagle Outfitters Inc. (AEO - Free Report) , Schnitzer Steel Industries Inc. (SCHN - Free Report) , Comfort Systems USA Inc. (FIX - Free Report) and Phillips 66 (PSX - Free Report) .
Screen of the Week of Zacks Investment Research:
Deploy DuPont Analysis to Pick 5 Top-Ranked Quality Stocks
The S&P 500 is hovering around the record level. But central banks’ moves, geo-political concerns and trade war tensions are always there to cause a sudden slowdown. This makes it important for investors to know the route to reach quality stocks.
The metric return on equity goes a long way in resolving this issue. The metric leads investors to differentiate between a profit-churner and a profit-burner. It is a profitability ratio that measures earnings that a company generates from its equity.
But one can tweak this basic concept and land on a more refining theory of DuPont analysis. This idea will take investors a step higher and better pick some quality stocks.
Here is how DuPont breaks down ROE into its different components:
ROE = Net Income/Equity
Net Income / Equity = (Net Income / Sales) * (Sales / Assets) * (Assets / Equity)
ROE = Profit Margin * Asset Turnover Ratio * Equity Multiplier
Why Use DuPont?
Although one can’t play down the importance of normal ROE calculation, the fact remains that it doesn’t always provide a complete picture. The DuPont analysis, on the other hand, allows investors to assess the elements that play a dominant role in any change in ROE. It can help investors to segregate companies having higher margins from those having high turnover. For example, high-end fashion brands generally survive on high margin as compared with retail goods, which rely on higher turnover.
In fact, it also sheds light on the company’s leverage status, which can go a long way in selecting stocks poised for gains. A lofty ROE could be due to the overuse of debt. Thus, the strength of a company can be misleading if it has a high debt load.
And that's what we're screening for today…
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/316679/deploy-dupont-analysis-to-pick-5-topranked-quality-stocks
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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.
About Screen of the Week
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Contact: Jim Giaquinto
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