Yahoo Finance 5 Stocks With High ROE to Buy as Inflation Blows Hot Again
The U.S. equity markets witnessed intense volatility in the past few trading sessions as inflationary pressures refused to abate, with the consumer price index (CPI) rising more than expected in January. The latest data revealed that CPI was up 0.5% in January following a 0.1% rise in December compared to broad-based expectations of a 0.4% increase. This, in turn, signified that inflation was still a force to reckon with and offered further ammunition to the Fed to continue its aggressive stance against it.
A few days earlier, Fed had raised the interest rates by 25 basis points – much akin to the broader expectations – and kept the door ajar for future hikes as it indicated that the battle against inflation was far from over. It also expected economic growth to remain subdued in 2023. Average hourly earnings in January fell 0.2% on a sequential basis and were down 1.8% from a year ago. The uncertain business environment failed to paint a clearer picture of the overall economy and led to the cacophony that drove the broader equity market volatility.
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 like return on equity (ROE). A high ROE ensures that the company is reinvesting cash at a high rate of return. THOR Industries, Inc. THO, CNH Industrial N.V. CNHI, Valero Energy Corporation VLO, Hologic, Inc. HOLX and Suzano S.A. SUZ 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.
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 asset, 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 22 stocks that qualified the screen:
THOR Industries: Founded in 1980, Indiana-based Thor Industries is the largest manufacturer of RVs in the world. The company builds a variety of RVs in North America and Europe. It sells those vehicles along with related parts and accessories to independent, non-franchise dealers throughout the United States, Canada and Europe.
It delivered a trailing four-quarter earnings surprise of 28.4%, on average. It has a VGM Score of B. Currently, Thor Industries carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
CNH Industrial: Headquartered in London, the United Kingdom, CNH Industrial is one of the leading equipment and services companies engaged in the manufacture and sale of agricultural and construction equipment. Currently, CNH Industrial has a commercial presence in approximately 180 countries.
CNHI carries a Zacks Rank #2. It delivered a trailing four-quarter earnings surprise of 14.1%, on average.
Valero Energy: San Antonio, TX-based Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. The company was founded in 1980. Valero Energy has a refining capacity of 3.1 million barrels per day across 15 refineries located throughout the United States, Canada and the United Kingdom.
The company has a long-term earnings growth expectation of 6% and delivered a trailing four-quarter earnings surprise of 19%, on average. Valero Energy carries a Zacks Rank #2.
Hologic: Headquartered in Bedford, MA, Hologic develops, manufactures and supplies diagnostics, medical imaging systems and surgical products that cater to the healthcare needs of women. The company is currently focusing on expanding its business across the patient continuum of care and has launched software products based on its investments in artificial intelligence.
The company has a long-term earnings growth expectation of 15.2% and delivered a trailing four-quarter earnings surprise of 30.6%, on average. Hologic sports a Zacks Rank #1.
Suzano: Headquartered in Salvador, Brazil, Suzano produces and sells eucalyptus pulp and paper products. With more than 90 years of experience, this vertically integrated firm is one of the largest producers of paper and graphic products in South America.
Suzano has a long-term earnings growth expectation of 8.8% and delivered a trailing four-quarter earnings surprise of 53.8%, on average. It has a VGM Score of A. It sports a Zacks Rank #1.
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.
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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.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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Thor Industries, Inc. (THO) : Free Stock Analysis Report
Valero Energy Corporation (VLO) : Free Stock Analysis Report
Hologic, Inc. (HOLX) : Free Stock Analysis Report
CNH Industrial N.V. (CNHI) : Free Stock Analysis Report
Suzano S.A. Sponsored ADR (SUZ) : Free Stock Analysis Report
