Canada markets closed
  • S&P/TSX

    21,125.90
    -487.28 (-2.25%)
     
  • S&P 500

    4,594.62
    -106.84 (-2.27%)
     
  • DOW

    34,899.34
    -905.04 (-2.53%)
     
  • CAD/USD

    0.7816
    -0.0089 (-1.12%)
     
  • CRUDE OIL

    68.15
    -10.24 (-13.06%)
     
  • BTC-CAD

    69,576.35
    -398.98 (-0.57%)
     
  • CMC Crypto 200

    1,365.60
    -89.82 (-6.17%)
     
  • GOLD FUTURES

    1,788.10
    +1.20 (+0.07%)
     
  • RUSSELL 2000

    2,245.94
    -85.52 (-3.67%)
     
  • 10-Yr Bond

    1.4820
    -0.1630 (-9.91%)
     
  • NASDAQ

    15,491.66
    -353.57 (-2.23%)
     
  • VOLATILITY

    28.62
    +10.04 (+54.04%)
     
  • FTSE

    7,044.03
    -266.34 (-3.64%)
     
  • NIKKEI 225

    28,751.62
    -747.66 (-2.53%)
     
  • CAD/EUR

    0.6901
    -0.0147 (-2.09%)
     

5 High ROE Stocks to Buy as Markets Face Intense Volatility

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·5 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

The U.S. equity markets have witnessed intense volatility over the past few days due to fiscal uncertainty, rising commodity prices, and high inflationary pressures. The stalemate over Republicans and Democrats about the debt ceiling added to the woes. The scenario improved slightly as Senator Mitch McConnell offered Democrats a short-term extension to lift the debt ceiling until December. Meanwhile, a better-than-expected increase in private jobs in September fueled speculations that the Fed could start tapering soon. The ADP National Employment Report showed private payrolls increased by 568,000 jobs last month, raising fears that Fed could reduce its monthly $120 billion bond buying program as early as November.  

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.

ROE: A Key Metric

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 22 stocks that qualified the screen:

T. Rowe Price Group, Inc. TROW: Founded in 1937 and headquartered in Baltimore, T. Rowe is a global investment management organization that provides a broad array of mutual funds, sub-advisory services, and separate account management for individual and institutional investors, retirement plans, and financial intermediaries. This Zacks #2 Ranked company has a long-term earnings growth expectation of 9%. The company delivered a trailing four-quarter earnings surprise of 3.7%, on average.

Best Buy Co., Inc. BBY: Headquartered in Richfield, MN, Best Buy is a multinational specialty retailer of consumer electronics, home office products, entertainment software, communication, food preparation, wellness, heath, security, appliances, and related services. The company operates in the United States and Canada. The company delivered a trailing four-quarter earnings surprise of 31.9%, on average. This Zacks #1 Ranked company has a long-term earnings growth expectation of 7.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Celanese Corporation CE: Texas-based Celanese is a global hybrid chemical firm that produces chemical substances and materials. The company manufactures high performance engineered polymers that are used in a range of high-value applications. It also produces acetyl products for most major industries. The company delivered a trailing four-quarter earnings surprise of 15.9%, on average. The Zacks Rank #2 company has a long-term earnings growth expectation of 24.8%.

CBRE Group, Inc. CBRE: Headquartered in Dallas, TX, CBRE is a commercial real estate services and investment firm, offering a wide range of services to tenants, owners, lenders, and investors in office, retail, industrial, multi-family, and other types of commercial real estates in all major metropolitan areas across the globe. With more than 100,000 employees, the company serves clients in above 100 countries. This Zacks #1 Ranked company has a long-term earnings growth expectation of 11%. The company delivered a trailing four-quarter earnings surprise of 53.5%, on average.

Regeneron Pharmaceuticals, Inc. REGN: Tarrytown, NY-based Regeneron is a biotechnology company focused on the discovery, development, and commercialization of treatments targeting serious medical conditions. The company delivered a trailing four-quarter earnings surprise of 18.7%, on average. This Zacks Rank #1 stock has a long-term earnings growth expectation of 8.5%.

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
 
Regeneron Pharmaceuticals, Inc. (REGN) : Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
 
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
 
Celanese Corporation (CE) : Free Stock Analysis Report
 
CBRE Group, Inc. (CBRE) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting