18 Rallying Large Caps With Strong Sources of Profitability

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 |  Includes: ABEV, APD, AXP, BAX, BMY, CBS, DOV, EL, ENIA, FDX, GR, M, NOC, NSC, PX, TSU, VFC, WFM
by: Kapitall

When considering the profitability of a company, it is necessary to look beyond the bottom line and find out where increases in profitability come from. Some sources, like net margin growth and asset efficiency, are preferable, whereas others - namely debt - are not.

A helpful tool to answer this question is DuPont analysis of return on equity (ROE), with ROE being the measure of profitability. ROE can be broken up into three components such that changes in ROE can be attributed to those components.

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Analyzing the sources of returns for a company, we can focus on companies with the following characteristics:

  • Decreasing leverage, i.e. decreasing Asset/Equity ratio
  • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.

We used DuPont analysis on large cap stocks rallying above their 20-day, 50-day, and 200-day moving averages. The final list of 18 is below.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these companies will keep rallying? Use this list as a starting-off point for your own analysis.

List sorted by market cap.

1. Companhia de Bebidas Das Americas (ABV): Market cap at $100.29B. Price currently 1.85% above its 20-Day SMA, 2.14% above its 50-Day SMA, and 14.20% above its 200-Day SMA. MRQ Net Profit Margin increased from 26.96% to 31.83%, Sales/Assets improved from 0.15 to 0.16, while Assets/Equity decreased from 1.78 to 1.73.

2. American Express Company (NYSE:AXP): Market cap at $59.55B. Price currently 1.24% above its 20-Day SMA, 0.77% above its 50-Day SMA, and 10.84% above its 200-Day SMA. MRQ Net Profit Margin increased from 12.36% to 15.44%, Sales/Assets improved from 0.05 to 0.053, while Assets/Equity decreased from 10.68 to 8.24.

3. Bristol-Myers Squibb Company (NYSE:BMY): Market cap at $48.57B. Price currently 1.63% above its 20-Day SMA, 0.87% above its 50-Day SMA, and 7.55% above its 200-Day SMA. MRQ Net Profit Margin increased from 15.46% to 19.68%, Sales/Assets improved from 0.156 to 0.162, while Assets/Equity decreased from 2.02 to 1.93.

4. Baxter International Inc. (NYSE:BAX): Market cap at $33.61B. Price currently 0.74% above its 20-Day SMA, 1.64% above its 50-Day SMA, and 13.47% above its 200-Day SMA. MRQ Net Profit Margin increased from -2.15% to 17.36%, Sales/Assets improved from 0.17 to 0.19, while Assets/Equity decreased from 2.67 to 2.59.

5. Praxair Inc. (NYSE:PX): Market cap at $31.50B. Price currently 1.83% above its 20-Day SMA, 0.55% above its 50-Day SMA, and 8.42% above its 200-Day SMA. MRQ Net Profit Margin increased from 12.93% to 14.73%, Sales/Assets improved from 0.16 to 0.17, while Assets/Equity decreased from 2.73 to 2.57.

6. FedEx Corporation (NYSE:FDX): Market cap at $29.31B. Price currently 4.56% above its 20-Day SMA, 1.31% above its 50-Day SMA, and 2.49% above its 200-Day SMA. MRQ Net Profit Margin increased from 4.44% to 5.29%, Sales/Assets improved from 0.38 to 0.39, while Assets/Equity decreased from 1.803 to 1.8.

7. Norfolk Southern Corp. (NYSE:NSC): Market cap at $25.47B. Price currently 0.90% above its 20-Day SMA, 1.21% above its 50-Day SMA, and 11.58% above its 200-Day SMA. MRQ Net Profit Margin increased from 11.48% to 12.40%, Sales/Assets improved from 0.08 to 0.09, while Assets/Equity decreased from 2.625 to 2.616.

8. Estee Lauder Companies Inc. (NYSE:EL): Market cap at $19.88B. Price currently 2.35% above its 20-Day SMA, 2.77% above its 50-Day SMA, and 20.14% above its 200-Day SMA. MRQ Net Profit Margin increased from 3.09% to 5.76%, Sales/Assets improved from 0.32 to 0.35, while Assets/Equity decreased from 2.79 to 2.47.

9. Air Products & Chemicals Inc. (NYSE:APD): Market cap at $19.71B. Price currently 1.31% above its 20-Day SMA, 0.65% above its 50-Day SMA, and 5.68% above its 200-Day SMA. MRQ Net Profit Margin increased from 11.20% to 12.17%, Sales/Assets improved from 0.17 to 0.18, while Assets/Equity decreased from 2.5 to 2.37.

10. Northrop Grumman Corporation (NYSE:NOC): Market cap at $18.56B. Price currently 3.72% above its 20-Day SMA, 4.87% above its 50-Day SMA, and 12.36% above its 200-Day SMA. MRQ Net Profit Margin increased from 6.78% to 7.87%, Sales/Assets improved from 0.23 to 0.25, while Assets/Equity decreased from 2.35 to 2.11.

11. CBS Corporation (NYSE:CBS): Market cap at $18.29B. Price currently 3.04% above its 20-Day SMA, 4.63% above its 50-Day SMA, and 29.18% above its 200-Day SMA. MRQ Net Profit Margin increased from -0.74% to 5.75%, Sales/Assets improved from 0.132 to 0.133, while Assets/Equity decreased from 2.96 to 2.7.

12. Enersis S.A. (ENI): Market cap at $14.95B. Price currently 3.80% above its 20-Day SMA, 6.91% above its 50-Day SMA, and 6.72% above its 200-Day SMA. MRQ Net Profit Margin increased from 7.98% to 8.31%, Sales/Assets improved from 0.12 to 0.13, while Assets/Equity decreased from 3.75 to 3.48.

13. TIM Participacoes S.A. (NYSE:TSU): Market cap at $12.13B. Price currently 0.82% above its 20-Day SMA, 3.25% above its 50-Day SMA, and 28.45% above its 200-Day SMA. MRQ Net Profit Margin increased from 1.66% to 5.69%, Sales/Assets improved from 0.19 to 0.2, while Assets/Equity decreased from 1.97 to 1.79.

14. Dover Corp. (NYSE:DOV): Market cap at $12.04B. Price currently 2.27% above its 20-Day SMA, 0.26% above its 50-Day SMA, and 7.87% above its 200-Day SMA. MRQ Net Profit Margin increased from 6.83% to 9.95%, Sales/Assets improved from 0.2 to 0.21, while Assets/Equity decreased from 1.98 to 1.97.

15. Macy's, Inc. (NYSE:M): Market cap at $12.01B. Price currently 1.43% above its 20-Day SMA, 4.60% above its 50-Day SMA, and 14.52% above its 200-Day SMA. MRQ Net Profit Margin increased from 0.41% to 2.22%, Sales/Assets improved from 0.27 to 0.29, while Assets/Equity decreased from 4.4 to 3.59.

16. Goodrich Corp. (NYSE:GR): Market cap at $11.65B. Price currently 5.10% above its 20-Day SMA, 5.69% above its 50-Day SMA, and 9.90% above its 200-Day SMA. MRQ Net Profit Margin increased from 6.56% to 10.27%, Sales/Assets improved from 0.19 to 0.2, while Assets/Equity decreased from 2.96 to 2.68.

17. V.F. Corporation (NYSE:VFC): Market cap at $11.49B. Price currently 5.81% above its 20-Day SMA, 5.25% above its 50-Day SMA, and 17.66% above its 200-Day SMA. MRQ Net Profit Margin increased from 9.34% to 10.25%, Sales/Assets improved from 0.27 to 0.29, while Assets/Equity decreased from 1.69 to 1.62.

18. Whole Foods Market, Inc. (NASDAQ:WFM): Market cap at $10.79B. Price currently 7.13% above its 20-Day SMA, 1.98% above its 50-Day SMA, and 17.28% above its 200-Day SMA. MRQ Net Profit Margin increased from 3.20% to 3.83%, Sales/Assets improved from 0.52 to 0.57, while Assets/Equity decreased from 1.81 to 1.53.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.