Do you like to trade with a stock's momentum trends? For ideas on how to start your search, we ran a screen you may be interested in.
We screened the S&P 500 for stocks recently hitting new 52-week highs. We then ran DuPont analysis of return on equity (ROE) profitability to find those companies with strong sources of profitability.
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 profitability? Use this list as a starting point for your own analysis.
1. Cummins Inc. (CMI): Designs, manufactures, distributes, and services diesel and natural gas engines, electric power generation systems, and engine-related component products worldwide. 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.
2. priceline.com Incorporated (PCLN): Operates as an online travel company. 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.
3. Unitedhealth Group, Inc. (UNH): Provides healthcare services in the United States. 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.
4. Yum! Brands, Inc. (YUM): Operates as a quick service restaurant company in the United States and internationally. 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.
*Accounting data sourced from Google Finance, all other data sourced from Finviz.