Enhance your portfolio amid fall volatility with this ROE stock screener
S.Stocks tumbled during the second session of the week, with the S&P 500 down 2% and the Nasdaq down 2.8%. Tuesday’s steep decline comes as Wall Street tries to determine the Federal Reserve’s next move.
The Fed signaled last week that it could begin to slowly reverse its bond-buying program as early as November. Meanwhile, the central bank announced that it may begin raising rates by next year. Against this backdrop, bond yields continued their recent surge. US 10-year Treasuries are hovering near the three-month high at around 1.52%, up from 1.18% in early August.
Some analysts fear that the US economic comeback may have already peaked, while others point to slower earnings revisions, rising prices and setbacks in the global supply chain as a caution. The market could remain volatile through the fourth quarter and 2022.
Fortunately, rates will likely continue to favor stocks. For example, the yield on 10-year US Treasuries has seldom and barely moved above 3% over the past ten years. And with inflation above 2%, Wall Street will continue to hunt for stock returns.
The market was also due for a healthy pullback or even a correction. And the overall bottom line and margins of the S&P 500 for 2022 and 2023 remain strong.
Therefore, investors with a long-term horizon should try to stay exposed to the market at all times. Today we’re looking at how to find high-ranking stocks that have been proven to turn assets into profits in the midst of volatility …
Return on Equity, or ROE, helps investors understand whether a company’s executives create assets with investors’ money or burn it up. ROE shows a company’s ability to turn assets into profits. In other words, this important metric measures the profits made for every dollar of equity.
The ROE is calculated as net profit / equity. For example, if $ 0.10 of assets is created for every $ 1 of equity, that equates to a 10% ROE.
Overall, return on equity is a great element to use regardless of your type of investor as it gives insight into management’s ability to create value and keep costs under control. Additionally, if the ROE fails, it can alert us to potential problems.
After all of this, let’s take a look at the parameters of this screen and see how companies prove they can give value back to their shareholders instead of screwing their money …
• Zacks rank equals 1
The Zacks Rank examines, among other things, upward revised earnings estimates to find companies whose earnings are expected to rise. In fact, starting with a # 1 Zacks rank can be a good place to start, as it has had an average annual return of over 25% per year for the past 30 years.
• Price greater than or equal to 5
Today we excluded all stocks that trade for less than $ 5 per share as they can be more volatile and speculative.
• Price / sales ratio less than or equal to 1
In addition, we are looking for a low price / sales ratio. Today we picked 1 or below as this range usually offers better value as investors pay less for each unit of sale.
•% (Broker) Rating Strong Buy equals 100 (%)
In this screen, we have chosen companies where brokers are fully on board, as the ratings are usually heavily skewed towards “buy” and “strong buy”.
• ROE greater than or equal to 10
Lastly, but most importantly for today’s screen, we’ve got rid of all companies with a ROE of less than 10 because the median ROE for all stocks in the Zacks universe is less than 10.
Here are three stocks that made it through today’s screen …
Citi Trends, Inc. CTRN
M / I Homes, Inc. MHO
Titan Machinery Inc. TITN
Get the rest of the stocks on this list and look for the latest companies that match those criteria. It is easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial of the Research Wizard. You can do it.
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Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities and / or hold long and / or short positions in options mentioned in this material. An affiliate investment adviser may own or have sold short sales of securities and / or hold long and / or short positions in options mentioned in this material.
Disclosure: Information on the performance of Zacks’ portfolios and strategies is available at: https://www.zacks.com/performance/
Zacks’ super screen
It’s hard to believe, even for us at Zacks. But from 2000 to 2020, when the market was up 6.6% a year, our top stock picking strategy was average + 52.4% per year.
How has this screen been doing lately? From 2016-2020 it has more than tripled the market growth of + 103.9% with an increase + 381.1% Return.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.