Find Strong Stocks for 2022 with Return on Equity
Today, we utilized a Zacks screen to help find highly-ranked stocks that have proven they can turn assets into profits...
The market bounced back in a big way Tuesday, with investors sending the S&P 500 back above its 50-day moving average. The level has been breached three times in the past month, with investors buying the dip every time. The tech-heavy Nasdaq is also now on the verge of climbing back above its 50-day.
Much of yesterday’s selling was hung on another round of major lockdowns in parts of Europe. Luckily for the economy and the market, President Biden addressed the country Tuesday afternoon, with his focus on beefing up at-home testing and providing help for possibly overburdened hospitals.
The buying started to ramp up mid-morning as it became clear sweeping lockdowns in the U.S. weren’t on the table. Alongside new covid fears, the market was due for a broader downturn and Wall Street has used the end of the year to take home profits and conduct other portfolio housekeeping efforts.
Despite the more volatile fourth quarter, the Nasdaq is still up 18% this year, with the S&P 500 24% higher. Plus, the overall earnings and interest rate environment is bullish for U.S. equities next year, even in the face rate hikes.
With this in mind, some investors might want to add to their portfolios for 2022. Today, we utilized a Zacks screen to help find highly-ranked stocks that have proven they can turn assets into profits…
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.
• % (Broker) Rating Strong Buy equal to 100 (%)
In this screen, we decided to go with companies that brokers are fully on board with since ratings are typically skewed strongly toward ‘buy’ and ‘strong buy.’
• ROE greater than or equal to 10
Lastly, but most importantly for today’s screen, we got rid of any companies with Return on Equity of less than 10 because the median ROE value for all of the stocks in the Zacks Universe is under 10.
Here are two of the dozen stocks that made it through today’s screen…
Citi Trends CTRN
Citi Trends, Inc. is a growing specialty value retailer of apparel, accessories, and home trends. Citi Trends boasts that it sells “for way less spend primarily for African American and Latinx families in the United States.”
Citi Trends currently operates roughly 600 stores across 33 states. CTRN’s Q3 revenue popped 14.5% and its adjusted earnings skyrocketed to $1.03 a share, which helped it crush our EPS estimate. Plus, Citi Trends’ gross margin came in at 40.3%. Plus, the Citi Trends board approved a new share repurchase program of $30 million.
Bluegreen Vacations Holding Corporation BVH
Bluegreen Vacations is a leading vacation ownership company. Bluegreen Vacations markets and sells vacation ownership interests (“VOIs”) and manages resorts in popular leisure and urban destinations.
Bluegreen Vacations has blown away our adjusted Zacks earnings estimates in the trailing four quarters, with an average beat of 695%. Bluegreen Vacations is projected to post a huge comeback year in 2021 and then follow it up with higher revenue and earnings in 2022.
Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to 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 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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Citi Trends, Inc. (CTRN): Free Stock Analysis Report
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