Yahoo Finance 5 Stocks With High ROE to Buy on Sustained AI-Infused Rally
After a brief period of the so-called market correction, the broader U.S. equity markets witnessed a steady uptrend over the past few trading days, buoyed by the AI rally. Experts largely view the AI-infused rally as having more substance than the dot-com bubble and remained bullish on a healthy gain in the second half of the year.
However, the optimism was partially marred by the skepticism regarding the upcoming release of May’s core personal consumption expenditures price index, which is the Federal Reserve’s preferred measure of inflation gauge. Easing pricing pressures are likely to increase the likelihood of a rate cut later this year, while an antagonistic reading could jeopardize the same and derail the growth momentum.
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. Genuine Parts Company GPC, CSX Corporation CSX, PulteGroup, Inc. PHM, Kellanova K and Banco de Chile BCH 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.
Parameters Used for Screening
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 13 stocks that qualified the screening:
Genuine Parts: Atlanta-based Genuine Parts distributes automotive and industrial replacement parts and materials. As of Dec 31, 2023, the company had a network of more than 10,700 locations, primarily in North America, Europe and Australasia. Currently, Genuine Parts operates through two segments: Automotive Parts and Industrial.
It delivered a trailing four-quarter earnings surprise of 3.6%, on average. It has a VGM Score of A. Genuine Parts carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
CSX Corporation: Based in Jacksonville, FL, CSX Corporation is one of the United States’ leading transportation companies. The company offers rail-based freight transportation services like traditional rail service and transport of intermodal containers and trailers apart from rail-to-truck transfers.
It has a long-term earnings growth expectation of 9.9% and delivered a trailing four-quarter earnings surprise of 1.1%, on average. CSX Corporation carries a Zacks Rank #2.
PulteGroup: Based in Atlanta, GA, PulteGroup engages in homebuilding and financial services businesses, primarily in the United States. The company conducts operations through two primary business segments – Homebuilding – which accounts for the lion’s share of revenues, and Financial Services.
PulteGroup has a long-term earnings growth expectation of 17.6% and delivered a trailing four-quarter earnings surprise of 12.5%, on average. This Zacks Rank #2 stock has a VGM Score of B.
Kellanova: Headquartered in Chicago, IL, Kellanova manufactures and markets snacks and convenience foods in North America, Europe, Latin America, the Asia Pacific, the Middle East, Australia and Africa. Its principal products include crackers, crisps, savory snacks, toaster pastries, cereal bars, granola bars and bites, ready-to-eat cereals, frozen waffles, veggie foods and noodles.
The company has a long-term earnings growth expectation of 7.8% and delivered a trailing four-quarter earnings surprise of 12.5%, on average. Kellanova carries a Zacks Rank #2.
Banco de Chile: Headquartered in Santiago, Chile, Banco de Chile provides various banking services to customers in the Latin American country. These include deposit accounts, loans, payment-related cards and insurance solutions. The company also offers services such as cash management, treasury, financial advisory, trade finance, leasing, factoring, payment, payroll, collection, mutual fund management, securities brokerage, currency trading, investment management, collection, securitization and capital markets services.
It delivered a trailing four-quarter earnings surprise of 7.1%, on average. Banco de Chile carries a Zacks Rank #2.
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.
Click here to sign up for a free trial to the Research Wizard today.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
CSX Corporation (CSX): Free Stock Analysis Report
Genuine Parts Company (GPC): Free Stock Analysis Report
PulteGroup, Inc. (PHM): Free Stock Analysis Report
Kellanova (K): Free Stock Analysis Report
Banco De Chile (BCH): Free Stock Analysis Report
