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There is always more to a company’s story than their bottom line. Although the bottom line, or net income, is the headline number that analysts watch and journalists report, companies can earn these profits in different ways – some more preferred than others. This is why it is always a good idea to study the source of profits for a company.

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 stocks trading within 10% of their 52-week highs.

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.

Do you think these stocks will continue moving higher? Use this list as a starting-off point for your own analysis.

List sorted by increase in ROE.

1. Pennichuck Corp. (NASDAQ:PNNW): Engages in the collection, storage, treatment, and distribution of potable water for domestic, industrial, commercial, and fire protection service markets primarily in New Hampshire. Market cap of $132.44M. The stock is currently trading at 1.11% below its 52-week high. MRQ Net Profit Margin increased to 15.55% from 10.95% year-over-year, Sales/Assets increased to 0.06 from 0.05, while Assets/Equity decreased to 3.24 from 3.25. The stock has gained 22.19% over the last year.

2. CenterPoint Energy, Inc. (NYSE:CNP): Operates as a public utility holding company in the United States. Market cap of $8.47B. The stock is currently trading at 2.46% below its 52-week high. MRQ Net Profit Margin increased to 6.48% from 4.61% year-over-year, Sales/Assets increased to 0.0934 from 0.0900, while Assets/Equity decreased to 5.94 from 6.38. The stock has gained 30.02% over the last year.

3. Visa, Inc. (NYSE:V): Operates retail electronic payments network worldwide. Market cap of $74.48B. The stock is currently trading at 2.27% below its 52-week high. MRQ Net Profit Margin increased to 43.28% from 35.29% year-over-year, Sales/Assets increased to 0.07 from 0.06, while Assets/Equity decreased to 1.32 from 1.33. The stock has had a couple of great days, gaining 7.27% over the last week.

4. ProAssurance Corporation (NYSE:PRA): Provides professional liability insurance products primarily to physicians, dentists, other healthcare providers, and healthcare facilities in the United States. Market cap of $2.37B. The stock is currently trading at 0.89% below its 52-week high. MRQ Net Profit Margin increased to 31.52% from 25.0% year-over-year, Sales/Assets increased to 0.04 from 0.03, while Assets/Equity decreased to 2.51 from 2.64. The stock is a short squeeze candidate, with a short float at 5.22% (equivalent to 8.05 days of average volume). The stock has gained 32.7% over the last year.

5. Wisconsin Energy Corp. (NYSE:WEC): Engages in the generation, distribution, and sale of electric energy and steam. Market cap of $7.36B. The stock is currently trading at 2.95% below its 52-week high. MRQ Net Profit Margin increased to 11.04% from 9.96% year-over-year, Sales/Assets increased to 0.08 from 0.07, while Assets/Equity decreased to 3.29 from 3.42. The stock has gained 11.98% over the last year.

6. Southern Company (NYSE:SO): Operates as a utility company that provides electric service in the southeastern United States. Market cap of $36.63B. The stock is currently trading at 1.44% below its 52-week high. MRQ Net Profit Margin increased to 13.71% from 12.51% year-over-year, Sales/Assets increased to 0.0807 from 0.0788, while Assets/Equity decreased to 3.10 from 3.21. The stock has gained 19.47% over the last year.

7. Dollar Tree, Inc. (NASDAQ:DLTR): Operates discount variety stores in the United States and Canada. Market cap of $9.76B. The stock is currently trading at 2.30% below its 52-week high. MRQ Net Profit Margin increased to 6.15% from 5.66% year-over-year, Sales/Assets increased to 0.62 from 0.61, while Assets/Equity decreased to 1.56 from 1.63. The stock has had a good month, gaining 11.11%.

8. MGE Energy Inc. (NASDAQ:MGEE): Operates as a public utility holding company. Market cap of $968.31M. The stock is currently trading at 2.06% below its 52-week high. MRQ Net Profit Margin increased to 10.85% from 10.59% year-over-year, Sales/Assets increased to 0.0881 from 0.0854, while Assets/Equity decreased to 2.47 from 2.50. The stock has gained 6.37% over the last year.

9. Total System Services, Inc. (NYSE:TSS): Provides electronic payment processing and other services to card-issuing and merchant acquiring institutions. Market cap of $3.60B. The stock is currently trading at 2.64% below its 52-week high. MRQ Net Profit Margin increased to 12.01% from 11.53% year-over-year, Sales/Assets increased to 0.24 from 0.23, while Assets/Equity decreased to 1.40 from 1.53. The stock has gained 21.59% over the last year.

10. Ross Stores Inc. (NASDAQ:ROST): Operates off-price retail apparel and home accessories stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. Market cap of $9.65B. The stock is currently trading at 2.32% below its 52-week high. MRQ Net Profit Margin increased to 7.10% from 6.76% year-over-year, Sales/Assets increased to 0.68 from 0.67, while Assets/Equity decreased to 2.14 from 2.27. The stock has had a couple of great days, gaining 6.68% over the last week.

11. V.F. Corporation (NYSE:VFC): Designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. Market cap of $14.35B. The stock is currently trading at 2.72% below its 52-week high. MRQ Net Profit Margin increased to 7.03% from 6.95% year-over-year, Sales/Assets increased to 0.27 from 0.25, while Assets/Equity decreased to 1.59 from 1.73. The stock has gained 58.61% over the last year.

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

Source: 11 Stocks Trading Near Highs With Strong Sources Of Profitability