10 Oversold, Low-Beta Stocks With Strong Sources of Profitability

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 |  Includes: ACIW, DLTR, DMND, DUK, ENIA, HMSY, SR, SWN, WEC, XOM
by: Kapitall

A company’s profitability can come from more than one source, and some are preferred over others. This is why an analysis beyond the top and bottom-line numbers is important when choosing stocks.

One way to analyze sources of profitability is with DuPont analysis of return on equity (ROE) profitability. ROE can be broken up into three components such that increases 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)

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

  • 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. To illustrate this analysis, we ran DuPont on companies that are technically oversold (with RSI(14) below 40) with beta below 0.5 (indicating lower volatility than the overall market).

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.

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.

[Click to enlarge]

Do you think these companies have attractive profitability? Use this list as a starting-off point for your own analysis.

List sorted by market cap.

1. Exxon Mobil Corporation (NYSE:XOM): Major Integrated Oil & Gas Industry. Market cap of $363.74B. RSI(14) at 30.53. Beta at 0.49. MRQ net profit margin has increased to 8.51% from 8.17% one year ago, MRQ Sales/Assets has increased to 0.38 from 0.32, and MRQ Assets/Equity has decreased to 2.02 from 2.08. It's been a rough couple of days for the stock, losing 9.35% over the last week.

2. Duke Energy Corporation (NYSE:DUK): Electric Utilities Industry. Market cap of $23.99B. RSI(14) at 31.72. Beta at 0.45. MRQ net profit margin has increased to 12.31% from -6.75% one year ago, MRQ Sales/Assets has increased to 0.0593 from 0.0583, and MRQ Assets/Equity has decreased to 2.63 from 2.67. The stock has gained 9.21% over the last year.

3. Southwestern Energy Co. (NYSE:SWN): Independent Oil & Gas Industry. Market cap of $13.87B. RSI(14) at 26.44. Beta at 0.44. MRQ net profit margin has increased to 21.88% from 20.69% one year ago, MRQ Sales/Assets has increased to 0.1135 from 0.1055, and MRQ Assets/Equity has decreased to 2.04 from 2.10. It's been a rough couple of days for the stock, losing 16.01% over the last week.

4. Enersis S.A. (ENI): Foreign Utilities Industry. Market cap of $13.22B. RSI(14) at 21.21. Beta at 0.49. MRQ net profit margin has increased to 8.31% from 7.98% one year ago, MRQ Sales/Assets has increased to 0.13 from 0.12, and MRQ Assets/Equity has decreased to 3.48 from 3.75. It's been a rough couple of days for the stock, losing 8% over the last week.

5. Dollar Tree, Inc. (NASDAQ:DLTR): Discount, Variety Stores Industry. Market cap of $7.77B. RSI(14) at 35.05. Beta at 0.43. MRQ net profit margin has increased to 6.53% from 4.70% one year ago, MRQ Sales/Assets has increased to 0.65 from 0.63, and MRQ Assets/Equity has decreased to 1.60 from 1.66. The stock has gained 48.61% over the last year.

6. Wisconsin Energy Corp. (NYSE:WEC): Diversified Utilities Industry. Market cap of $6.81B. RSI(14) at 28.28. Beta at 0.37. MRQ net profit margin has increased to 11.04% from 9.96% one year ago, MRQ Sales/Assets has increased to 0.08 from 0.07, and MRQ Assets/Equity has decreased to 3.29 from 3.42. It's been a rough couple of days for the stock, losing 5.91% over the last week.

7. HMS Holdings Corp. (NASDAQ:HMSY): Business Services Industry. Market cap of $1.94B. RSI(14) at 28.52. Beta at 0.19. MRQ net profit margin has increased to 13.90% from 12.88% one year ago, MRQ Sales/Assets has increased to 0.2317 from 0.2307, and MRQ Assets/Equity has decreased to 1.11 from 1.15. The stock is a short squeeze candidate, with a short float at 6.9% (equivalent to 13.21 days of average volume). It's been a rough couple of days for the stock, losing 7.94% over the last week.

8. Diamond Foods, Inc. (NASDAQ:DMND): Processed & Packaged Goods Industry. Market cap of $1.48B. RSI(14) at 33.19. Beta at 0.45. MRQ net profit margin has increased to 3.47% from -3.08% one year ago, MRQ Sales/Assets has increased to 0.17 from 0.11, and MRQ Assets/Equity has decreased to 2.97 from 3.36. The stock is a short squeeze candidate, with a short float at 36.19% (equivalent to 33.28 days of average volume). The stock has performed poorly over the last month, losing 14.18%.

9. ACI Worldwide, Inc. (NASDAQ:ACIW): Technical & System Software Industry. Market cap of $1.09B. RSI(14) at 37.81. Beta at 0.36. MRQ net profit margin has increased to 8.64% from -0.16% one year ago, MRQ Sales/Assets has increased to 0.18 from 0.17, and MRQ Assets/Equity has decreased to 2.20 from 2.54. It's been a rough couple of days for the stock, losing 10.26% over the last week.

10. Laclede Group Inc. (LG): Gas Utilities Industry. Market cap of $811.47M. RSI(14) at 39.39. Beta at 0.07. MRQ net profit margin has increased to 4.47% from 1.46% one year ago, MRQ Sales/Assets has increased to 0.20 from 0.18, and MRQ Assets/Equity has decreased to 3.01 from 3.25. Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.47%, current ratio at 1.86, and quick ratio at 1.53. The stock has gained 7.83% over the last year.

*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.