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5 Top ROE Picks as Trade Tariff Fears Subside

Is (HRS) Outperforming Other Computer and Technology Stocks This Year?

Investors have been on the edge since Trump’s tariff talks had sparked trade war fears between the United States and China. As tensions gradually eased with both sides practicing restraint, the market took a breather and recovered from the early jolt when the news had first gone public.

As investors employ a wait-and-see approach in a classic example of “backing and filling” in the market, they could benefit from ‘cash cow’ stocks that rake in higher returns.

However, singling out cash-rich stocks alone does not make for a solid investment proposition unless they are backed by attractive efficiency ratios like return on equity (ROE). A high ROE ensures that the company is reinvesting its cash at a high rate of return.

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 stocks 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 less than X-Industry: This metric measures how much investors pay for one dollar 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 19 stocks that qualified the screen:

Facebook, Inc. FB: Headquartered in Menlo Park, CA, Facebook helps in creating and fostering social networks through its web-based portal. It helps users exchange messages, post pictures, play social games, listen to music and interact with their favorite brands. The company has a trailing four-quarter average positive earnings surprise of 15.8% and long-term earnings growth expectation of 25.9%. Facebook carries a Zacks Rank #2.

AMC Networks Inc. AMCX: Headquartered in New York, NY, AMC Networks operates various cable television brands delivering content to audiences, and a platform to distributors and advertisers in the United States and internationally. The company has a trailing four-quarter average positive earnings surprise of 24.3% and long-term earnings growth expectation of 7.4%. AMC Networks sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

LyondellBasell Industries N.V. LYB: Based in Rotterdam, the Netherlands, LyondellBasell is among the leading plastics, chemical and refining companies with operations across 18 countries. The company’s products are used across a bevy of industries, including electronics, automotive parts, packaging, construction materials and biofuels. This Zacks Rank #1 stock has a trailing four-quarter average positive earnings surprise of 2.1% and long-term earnings growth projection of 9%.

Applied Materials, Inc. AMAT: Headquartered in Santa Clara, CA, Applied Materials is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays, and solar photovoltaic cells and modules. The company also offers deployment and support services related to the equipment supplied. This Zacks Rank #1 stock has a trailing four-quarter average positive earnings surprise of 4.8% and long-term earnings growth projection of 13.3%.

International Consolidated Airlines Group, S.A. ICAGY: Based in Madrid, Spain, International Consolidated Airlines Group offers passenger and cargo transportation services in the United Kingdom, Spain, Ireland, the United States, and rest of the world. This Zacks Rank #1 stock has a trailing four-quarter average positive earnings surprise of 76.1% and long-term earnings growth projection of 1.8%.

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.

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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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International Consolidated Airlines Group SA (ICAGY) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
AMC Networks Inc. (AMCX) : Free Stock Analysis Report
 
LyondellBasell Industries N.V. (LYB) : Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
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