Do you like the comfort of investing in the largest companies out there? For ideas on how to analyze their profitability, we ran a screen.
We ran DuPont analysis on the return on equity (ROE) profitability of the 200 largest US-traded companies, referred to as "mega-cap" stocks.
DuPont analyzes ROE (net income/equity) profitability by breaking ROE up into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
We therefore focus on companies with the following positive 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 with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.
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 companies are performing well? Use this list as a starting point for your own analysis.
1. Apple Inc. (AAPL): Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at 475.01B. MRQ net profit margin at 28.2% vs. 22.45% y/y. MRQ sales/assets at 0.334 vs. 0.308 y/y. MRQ assets/equity at 1.54 vs. 1.587 y/y.
2. Visa, Inc. (V): Operates retail electronic payments network worldwide. Market cap at 93.72B. MRQ net profit margin at 40.4% vs. 39.5% y/y. MRQ sales/assets at 0.071 vs. 0.066 y/y. MRQ assets/equity at 1.31 vs. 1.331 y/y.
3. Kraft Foods Inc. (KFT): Manufactures and markets packaged food products worldwide. Market cap at 68.02B. MRQ net profit margin at 6.97% vs. 6.36% y/y. MRQ sales/assets at 0.138 vs. 0.127 y/y. MRQ assets/equity at 2.619 vs. 2.684 y/y.
4. American Express Company (AXP): Provides charge and credit payment card products, and travel-related services worldwide. Market cap at 60.35B. MRQ net profit margin at 14.33% vs. 13.53% y/y. MRQ sales/assets at 0.054 vs. 0.054 y/y. MRQ assets/equity at 8.053 vs. 9.038 y/y.
5. Unitedhealth Group, Inc. (UNH): Provides healthcare services in the United States. Market cap at 58.06B. MRQ net profit margin at 4.85% vs. 4.34% y/y. MRQ sales/assets at 0.382 vs. 0.381 y/y. MRQ assets/equity at 2.4 vs. 2.442 y/y.
6. Boeing Co. (BA): Engages in the design, development, manufacture, sale, and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. Market cap at 56.16B. MRQ net profit margin at 7.12% vs. 7.03% y/y. MRQ sales/assets at 0.244 vs. 0.241 y/y. MRQ assets/equity at 22.756 vs. 24.789 y/y.
7. FedEx Corporation (FDX): Provides transportation, e-commerce, and business services in the United States and internationally. Market cap at 30.05B. MRQ net profit margin at 4.69% vs. 2.94% y/y. MRQ sales/assets at 0.372 vs. 0.369 y/y. MRQ assets/equity at 1.788 vs. 1.792 y/y.
8. Yum! Brands, Inc. (YUM): Operates as a quick service restaurant company in the United States and internationally. Market cap at 29.46B. MRQ net profit margin at 8.66% vs. 7.69% y/y. MRQ sales/assets at 0.465 vs. 0.428 y/y. MRQ assets/equity at 4.846 vs. 5.277 y/y.
9. priceline.com Incorporated (PCLN): Operates as an online travel company. Market cap at 28.72B. MRQ net profit margin at 32.32% vs. 22.26% y/y. MRQ sales/assets at 0.381 vs. 0.365 y/y. MRQ assets/equity at 1.596 vs. 1.678 y/y.
*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.