If you like to focus on a company's earnings before anything else, you may be interested in this screen.
We screened mega-cap stocks, the 200 largest US-traded stocks by market cap, for those with strong profit margins, with higher gross, operating, and pretax margins than their industry peers.
We then ran DuPont analysis of return on equity (ROE) profitability of these names to find those with strong sources of profitability.
DuPont analyzes return on equity (ROE, or 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)
It therefore focuses 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 stocks' earnings will continue to grow? Use this list as a starting point for your own analysis.
1. Apple Inc. (NASDAQ: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 $514.67B. TTM gross margin at 44.12% vs. industry average at 42.55%. TTM operating margin at 33.87% vs. industry average at 26.06%.TTM pretax margin at 34.2% vs. industry average at 26.21%. 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. Abbott Laboratories (NYSE:ABT): Engages in the discovery, development, manufacture, and sale of health care products worldwide. Market cap at $91.56B. TTM gross margin at 68.66% vs. industry average at 67.39%. TTM operating margin at 23.16% vs. industry average at 17.04%.TTM pretax margin at 13.41% vs. industry average at 7.94%. MRQ net profit margin at 15.6% vs. 14.45% y/y. MRQ sales/assets at 0.172 vs. 0.165 y/y. MRQ assets/equity at 2.466 vs. 2.671 y/y.
3. Unitedhealth Group, Inc. (NYSE:UNH): Provides healthcare services in the United States. Market cap at $57.49B. TTM gross margin at 24.69% vs. industry average at 20.47%. TTM operating margin at 8.31% vs. industry average at 8.25%.TTM pretax margin at 7.81% vs. industry average at 6.79%. 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.
*Margin data sourced from Fidelity, 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.