5 Stocks With High ROE to Buy Amid Congress Mid-Term Polls
The U.S. equity markets witnessed an uptrend in the past few trading sessions despite a soft iPhone production warning from Apple owing to Covid-19 restrictions in China. The rise was largely triggered by optimism surrounding the mid-term congressional elections as markets widely expect an outcome that would potentially benefit interest rates and Treasury supply. With the fourth successive 75 basis point increase, the Fed has vowed to continue its aggressive rate hike policy to curb high inflationary pressures. However, inflation has yet to recede from its near 40-year highs, fueling speculations that more interest rate hikes are in the pipeline.
With the consumer price index report due on Thursday, investors await further clarity regarding the future interest rate path and its likely impact on the economy as concerns about recession refuse to abate. Meanwhile, the corporate earnings season is winding down with better-than-expected performance from hitherto reported companies.
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. Jabil Inc. JBL, Ryder System, Inc. R, AGNC Investment Corp. AGNC, JPMorgan Chase & Co. JPM and Equinor ASA EQNR 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 eight stocks that qualified the screen:
Jabil: Headquartered in St. Petersburg, FL, Jabil is one of the largest global suppliers of electronic manufacturing services. The company offers electronics design, product management and after-market services to customers catering to aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, storage and telecommunications industries.
It delivered a trailing four-quarter earnings surprise of 9.3%, on average and has a long-term earnings growth expectation of 12%. Currently, Jabil sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ryder System: Florida-based Ryder System is recognized as one of the world's largest providers of integrated logistics and transportation solutions. It serves a variety of industries, the most significant of which are automotive, electronics, transportation, grocery, lumber and wood products, food service and home furnishing.
The company delivered a trailing four-quarter earnings surprise of 30.1%, on average. Ryder System carries a Zacks Rank #2.
AGNC Investment: Previously known as American Capital Agency Corp., AGNC Investment is a real estate investment trust focused on leveraged investments in Agency residential mortgage-backed securities. That includes residential mortgage pass-through securities and collateralized mortgage obligations.
AGNC Investment adheres to an active portfolio-management policy, which includes re-evaluation and adjustment of its portfolio and hedges amid a varying interest rate and mortgage market environment. The company delivered a trailing four-quarter earnings surprise of 22.1%, on average. AGNC Investment sports a Zacks Rank #1.
JPMorgan: Headquartered in New York, JPMorgan is one of the biggest global banks with assets valued at $3.84 trillion and stockholders’ equity worth $286.1 billion as of Jun 30, 2022. With operations in more than 60 countries, the company is one of the largest financial service firms in the world.
The company has a long-term earnings growth expectation of 5% and delivered a trailing four-quarter earnings surprise of 2.6%, on average. JPMorgan carries a Zacks Rank #2.
Equinor: Headquartered in Stavanger, Norway, Equinor is one of the premier integrated energy companies in the world, with operations spreading across 30 countries. In Europe, the company is the second-largest supplier of natural gas. Equinor is also a leading seller of crude oil.
Equinor has a long-term earnings growth expectation of 5% and delivered a trailing four-quarter earnings surprise of 10.2%, on average. It sports a Zacks Rank #1.
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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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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Ryder System, Inc. (R) : Free Stock Analysis Report
AGNC Investment Corp. (AGNC) : Free Stock Analysis Report
Jabil, Inc. (JBL) : Free Stock Analysis Report
Equinor ASA (EQNR) : Free Stock Analysis Report
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