The Cash Cow Cavalry: 3 Stocks Leading the Charge to Profitability
Investors care about the bottom line. What does this mean? Well, we want to be looking for companies that are making a profit and growing their earnings at an appealing rate over time. There’s not much appeal in investing in a company that doesn’t have great prospects for improving its earnings. It’s also not too enticing to put our money in a company that can make great revenue but can’t manage to hang on to any of it after all of its costs.
Although there are occasions when it can be crucial for companies to shovel all their cash into research and development for future performance, eventually, there is a time when all companies need to begin making a return and start growing their earnings. After all, profitability drives a company’s value in the market. That’s why in this article, we aim to present you with three companies that are leading the way in profitability.
Meta Platforms (META)
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Meta Platforms (NASDAQ:META) is one of the biggest companies in the stock market that specializes in connecting people together through various platforms. The stock is up over 170% in the past year with an average Yahoo Finance analyst rating of “Buy.”
The overall number of users across its platforms has steadily been growing over the past few years with the number hitting 3.98 billion at the end of 2023. In fact, this number has increased every single quarter over the last 5 years and we can expect this trend to only continue, thus driving more revenue for the company.
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In terms of profitability, the company reported EPS of $15.19 for the fiscal year of 2023. With revenue per share around $50.41, the company is definitely keeping a good chunk of it, especially with its recent cost-cutting measures. Earnings are expected to grow upwards of 20% by the end of next year, making the company worth a look to add to any portfolio.
Hercules Capital, Inc. (HTGC)
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Hercules Capital, Inc. (NYSE:HTGC) is a leading business development company focused on early-stage venture investing, primarily in the technology and life science industries. In 2023, Hercules Capital reported a record year in terms of gross funding and net profits, totaling $1.6 billion.
The main value proposition of HTGC to an income investor would be its net investment income (NII) and net asset value (NAV) per share. In its 2023 annual report, HTGC witnessed a 61.7% YOY increase in NII, and 43.2% YOY increase in NAV. Not only did this allow it plenty of room to fund a $0.08 per share special dividend for investors, but it also allowed HTGC to reinvest this retained capital into a runway toward optimistic growth.
Looking at its valuation, we see that HTGC also provides an attractive discount. Its TTM P/E ratio currently sits at 7.86x, a 30% discount compared to its sector median of 11.30x. With Hercules Capital set to benefit from macroeconomic tailwinds including higher short-term interest rates, HTGC is no doubt a fantastic pick for any income investor.
Cardinal Health (CAH)
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Cardinal Health (NYSE:CAH) is a global healthcare company that operates with a diversified business model covering pharmaceutical distribution and medical products. Despite its over 26% run in 2023, Yahoo Finance analysts remain optimistic on this stock with a one-year target high of $133.
In Cardinal Health’s full-year 2023 report, it put forward aggressive guidance for cost-saving measures to drive widened margins. Their pharmaceutical segment’s profit, for example, was up 18% ahead of expectations. Management explained that their COVID-19 vaccine and expanding generics program were the leading drivers for their improved margins.
This drive toward cost-cutting and improved profitability is reflected well in Cardinal Health’s valuation and projected financial operations too. CAH’s is currently expecting an increased EPS outlook of $6.75-$7.00 in FY 2024. With CAH’s P/E ratio also sitting at 15% discount compared to its industry median, Cardinal Health presents an example of an undervalued healthcare giant driving high profitability.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chandler Capital is the work of Ian Hartana and Vayun Chugh. Ian Hartana and Vayun Chugh are both self-taught investors whose work has been featured in Seeking Alpha. Their research primarily revolves around GARP stocks with a long-term investment perspective encompassing diverse sectors such as technology, energy, and healthcare.
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