11 Outperforming S&P 500 Stocks With Strong Sources Of Profitability

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 |  Includes: CNP, ISRG, JWN, KLAC, KMI, NI, PEG, TSS, V, WEC, WFM
by: Kapitall

Company profitability is not as straightforward as it often appears to be. Although net income is the popular headline number that analysts follow during earnings season, companies can earn these profits in different ways, with some preferred over others. This is why it is important to also study the sources 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 of the S&P 500 (NYSEARCA:SPY) that have outperformed the index, with positive return over the last quarter.

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.

(Click chart for more detail)


Do you think these stocks will keep beating the market? Use this list as a starting-off point for your own analysis.

List sorted by change in ROE.

1. KLA-Tencor Corporation (NASDAQ:KLAC): Engages in the design, manufacture, and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Market cap of $7.20B. The stock has gained 1.55% over the past quarter. MRQ Net Profit Margin increased to 27.46% from 20.21% year-over-year, Sales/Assets increased to 0.19 from 0.14, while Assets/Equity decreased to 1.63 from 1.74. The stock has had a good month, gaining 12.76%.

2. CenterPoint Energy, Inc. (NYSE:CNP): Operates as a public utility holding company in the United States. Market cap of $8.80B. The stock has gained 2.99% over the past quarter. 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 31.91% over the last year.

3. NiSource Inc. (NYSE:NI): Provides natural gas, electricity, and other products and services. Market cap of $6.24B. The stock has gained 5.75% over the past quarter. MRQ Net Profit Margin increased to 3.17% from 2.40% year-over-year, Sales/Assets increased to 0.0635 from 0.0615, while Assets/Equity decreased to 3.87 from 3.89. The stock has gained 30.82% over the last year.

4. Visa, Inc. (NYSE:V): Operates retail electronic payments network worldwide. Market cap of $73.59B. The stock has gained 2.48% over the past quarter. 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 gained 14.14% over the last year.

5. Public Service Enterprise Group Inc. (NYSE:PEG): Operates in the energy industry primarily in the northeastern and mid Atlantic United States. Market cap of $16.72B. The stock has gained 2.35% over the past quarter. MRQ Net Profit Margin increased to 13.08% from 9.49% year-over-year, Sales/Assets increased to 0.09 from 0.08, while Assets/Equity decreased to 2.85 from 3.15. The stock has gained 2.77% over the last year.

6. El Paso Corp. (EP): Operates in the natural gas transmission, and exploration and production sectors of the energy industry primarily in the United States. Market cap of $18.77B. The stock has gained 16.83% over the past quarter. MRQ Net Profit Margin increased to 21.20% from 15.42% year-over-year, Sales/Assets increased to 0.05 from 0.04, while Assets/Equity decreased to 4.96 from 6.04. The stock has had a couple of great days, gaining 28.33% over the last week.

7. Wisconsin Energy Corp. (NYSE:WEC): Engages in the generation, distribution, and sale of electric energy and steam. Market cap of $7.55B. The stock has gained 2.21% over the past quarter. 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 12.14% over the last year.

8. Intuitive Surgical, Inc. (NASDAQ:ISRG): Designs, manufactures, and markets da Vinci surgical systems for various surgical procedures, including urologic, gynecologic, cardiothoracic, general, and head and neck surgeries. Market cap of $16.32B. The stock has gained 0.94% over the past quarter. MRQ Net Profit Margin increased to 27.58% from 25.29% year-over-year, Sales/Assets increased to 0.1606 from 0.1563, while Assets/Equity decreased to 1.16 from 1.17. The stock has had a couple of great days, gaining 9.28% over the last week.

9. Whole Foods Market, Inc. (NASDAQ:WFM): Engages in the ownership and operation of natural and organic food supermarkets. Market cap of $12.58B. The stock has gained 8.71% over the past quarter. MRQ Net Profit Margin increased to 3.69% from 3.04% year-over-year, Sales/Assets increased to 0.58 from 0.56, while Assets/Equity decreased to 1.45 from 1.69. The stock has gained 86.36% over the last year.

10. Nordstrom Inc. (NYSE:JWN): A fashion specialty retailer, offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. Market cap of $10.91B. The stock has gained 0.35% over the past quarter. MRQ Net Profit Margin increased to 6.23% from 5.81% year-over-year, Sales/Assets increased to 0.36 from 0.34, while Assets/Equity decreased to 3.86 from 4.03. The stock has gained 41.69% over the last year.

11. Total System Services, Inc. (NYSE:TSS): Provides electronic payment processing and other services to card-issuing and merchant acquiring institutions. Market cap of $3.55B. The stock has gained 1.26% over the past quarter. 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 17.3% 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.