The Nasdaq fell nearly 2% on Tuesday, as Wall Street sold technology stocks, despite strong first quarter financial results from most of the sector and nearly all of the true tech giants. Tuesday’s pullback pushed the tech-heavy index roughly 4% off its record highs.
Along with profit-taking, some of the selling was sparked by Janet Yellen’s comments at The Wall Street Journal’s CEO Council Summit. Yellen spoke about the possibility that the Fed might have to raise interest rates if the Biden administration’s spending plans go forward. The Treasury Secretary later clarified that she doesn’t think there’s going to be inflationary problems.
Despite the broader bullish outlook, driven by rising earnings, consumer spending, the economic reopening, and much more, investors might want to consider bolstering their portfolios with highly-ranked stocks that have proven they can turn assets into profits…
ROE
Return on Equity or ROE helps investors understand if a firm’s executives are creating assets with investors’ cash or burning it. ROE shows a company’s ability to turn assets into profits. Put another way, this vital metric measures the profits made for each dollar of shareholder equity.
ROE is calculated as net income / shareholder's equity. For example: if $0.10 of assets are created for each $1 of shareholder equity that would equal a ROE of 10%.
Overall, Return on Equity is a great item to use regardless of what type of investor you are since it provides insight into management’s ability to create value and keep costs under control. Plus, if ROE slips, it can alert us to potential problems.
With all that said, let’s take a look at this screen’s parameters and see the companies proving they can return value to shareholders instead of churning through their cash…
• Zacks Rank equal to 1
The Zacks Rank looks at upward earnings estimate revisions, among other metrics, in order to find companies that are projected to see their earnings get stronger. In fact, beginning with a Zacks Rank #1 can be a great starting point because it boasts an average annual return of over 25% per year during the last 30 years.
• Price greater than or equal to 5
Today we ruled out any stocks that are trading for less than $5 a share because they can be more volatile and speculative.
• Price/Sales Ratio less than or equal to 1
On top of that, we are looking for a low price to sales ratio. Today we went with 1 or below as this range is usually thought to provide better value since investors pay less for each unit of sales.