Chicago, IL – August 1, 2024 – Stocks in this week’s article are Best Buy Co., Inc. BBY, The AES Corp. AES, Lockheed Martin Corp. LMT, PulteGroup, Inc. PHM and Banco de Chile BCH.
5 High ROE Stocks to Bet On as Markets Seek Rate Cut Clarity
The broader U.S. equity markets witnessed a modest uptrend over the past few trading days, buoyed by optimism related to rate cuts driven by easing inflationary pressures and solid economic metrics that portrayed the resilience of the economy. In addition, a relatively healthy earnings performance from hitherto reported companies ignited hopes of a possible rate cut as early as September.
The markets now await the Federal Reserve’s update on the monetary policy as it wraps up its policy meeting later today. Although the Fed is widely expected to keep the benchmark funds rate steady in the 5.25% to 5.5% range, investors are seeking cues for probable cuts in the near future. With a better-than-expected 2.8% annualized GDP growth in the second quarter and a robust labor market scenario, the conditions appear primed to heed the broader sentiments.
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. Best Buy Co., Inc., The AES Corp., Lockheed Martin Corp., PulteGroup, Inc. and Banco de Chile 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.
Here are five of the 14 stocks that qualified the screening:
Best Buy: Headquartered in Richfield, MN, Best Buy is a multinational specialty retailer of consumer electronics, home office products, entertainment software, communication, food preparation, wellness, health, security, appliances and related services. The company retails technology products in the United States and Canada.
It has a long-term earnings growth expectation of 5.1% and delivered a trailing four-quarter earnings surprise of 11%, on average. It has a VGM Score of B. Best Buy carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
AES: Arlington, VA-based AES is a global power company. Its businesses are spread across four continents in 14 countries. The company has four Strategic Business Units located in the United States and other regions across the globe. AES remains one of the forerunners in the utility industry's transition to clean energy by investing in sustainable growth and innovative solutions while delivering superior results.
It delivered a trailing four-quarter earnings surprise of 13.8%, on average. AES carries a Zacks Rank #2. It has a VGM Score of A.
Lockheed Martin: Based in Bethesda, MD, Lockheed Martin is the largest defense contractor in the world. Its main areas of focus are defense, space, intelligence, homeland security and information technology, including cyber security. Lockheed Martin currently operates through four businesses — Aeronautics, Missiles and Fire Control, Rotary and Missions Systems and Space Systems.
The company has a long-term earnings growth expectation of 4.2% and delivered a trailing four-quarter earnings surprise of 7.5%, on average. Lockheed Martin 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 and Financial Services. The company engages in maintaining a 50/50 balance between build-to-order and spec sales, enabling it to meet immediate demand with spec homes while also accommodating buyers who prefer to customize their homes with build-to-order options.
The company has a long-term earnings growth expectation of 19% and delivered a trailing four-quarter earnings surprise of 10%, on average. It has a VGM Score of B. PulteGroup 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.
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For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2312735/5-high-roe-stocks-to-bet-on-as-markets-seek-rate-cut-clarity
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