The S&P 500 is up an impressive 7% since the start of the year. For a look at which stocks are even outperforming this index, we screened large-cap companies for those with greater than 20% return over the latest quarter. We then ran DuPont analysis of return on equity (ROE) profitability to find those with strong sources of profits.
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 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 have strong performance? 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 $464.01B. The stock has risen 31.22% over the last quarter. 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. CA Technologies (CA): Designs, develops, markets, delivers, licenses, and supports information technology management software products that operate on a range of hardware platforms and operating systems. Market cap at $13.06B. The stock has risen 27.01% over the last quarter. MRQ net profit margin at 20.82% vs. 17.48% y/y. MRQ sales/assets at 0.107 vs. 0.096 y/y. MRQ assets/equity at 2.058 vs. 2.176 y/y.
3. Cummins Inc. (CMI): Designs, manufactures, distributes, and services diesel and natural gas engines, electric power generation systems, and engine-related component products worldwide. Market cap at $23.35B. The stock has risen 22.29% over the last quarter. MRQ net profit margin at 11.14% vs. 8.75% y/y. MRQ sales/assets at 0.422 vs. 0.398 y/y. MRQ assets/equity at 2.125 vs. 2.227 y/y.
4. Plains All American Pipeline, L.P. (PAA): Engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products in the United States and Canada. Market cap at $12.67B. The stock has risen 27.98% over the last quarter. MRQ net profit margin at 3.13% vs. 1.96% y/y. MRQ sales/assets at 0.578 vs. 0.528 y/y. MRQ assets/equity at 2.824 vs. 3.156 y/y.
5. Visa, Inc. (V): Operates retail electronic payments network worldwide. Market cap at $93.61B. The stock has risen 22.97% over the last quarter. 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.
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.