Do you like to invest with a stock's momentum trends? For ideas on how to start your own momentum search, we ran a screen.
We began by screening the large-cap sector, with market caps above $10 billion, for those with strong upward momentum, trading within 5% of their 52-week highs.
Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered positive changes, DuPont focuses on companies with these 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)
Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.
(click to enlarge)
Do you think these companies have strong profitability? Use this list as a starting point for your own analysis.
List sorted by distance from 52-week high.
1. Kimberly-Clark Corporation (KMB): Engages in the manufacture and marketing of health care products worldwide. Market cap at $30.91B, most recent closing price at $78.83. The stock is trading 1.74% below its 52-week high. MRQ net profit margin at 8.93% vs. 6.96% y/y. MRQ sales/assets at 0.268 vs. 0.252 y/y. MRQ assets/equity at 3.653 vs. 3.679 y/y.
2. Abbott Laboratories (ABT): Engages in the discovery, development, manufacture, and sale of health care products worldwide. Market cap at $96.87B, most recent closing price at $61.57. The stock is trading 2.29% below its 52-week high. MRQ net profit margin at 13.13% vs. 9.55% y/y. MRQ sales/assets at 0.152 vs. 0.147 y/y. MRQ assets/equity at 2.452 vs. 2.503 y/y.
3. Equity Residential (EQR): Engages in the acquisition, development, and management of multifamily properties in the United States. Market cap at $18.5B, most recent closing price at $60.35. The stock is trading 3.38% below its 52-week high. MRQ net profit margin at 27.54% vs. 27.3% y/y. MRQ sales/assets at 0.032 vs. 0.029 y/y. MRQ assets/equity at 2.831 vs. 3.045 y/y.
4. Health Care REIT, Inc. (HCN): Engages in investment, development, and management of properties. Market cap at $11.52B, most recent closing price at $53.89. The stock is trading 4.08% below its 52-week high. MRQ net profit margin at 13.44% vs. 13.04% y/y. MRQ sales/assets at 0.027 vs. 0.019 y/y. MRQ assets/equity at 1.889 vs. 2.003 y/y.
5. Merck & Co. Inc. (MRK): Provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. Market cap at $115.03B, most recent closing price at $37.82. The stock is trading 4.81% below its 52-week high. MRQ net profit margin at 14.82% vs. 9.01% y/y. MRQ sales/assets at 0.111 vs. 0.109 y/y. MRQ assets/equity at 1.923 vs. 1.947 y/y.
6. Dollar General Corporation (DG): Operates as a discount retailer of general merchandise in the southern, southwestern, midwestern, and eastern United States. Market cap at $15.45B, most recent closing price at $45.65. The stock is trading 4.85% below its 52-week high. MRQ net profit margin at 6.99% vs. 6.38% y/y. MRQ sales/assets at 0.432 vs. 0.365 y/y. MRQ assets/equity at 2.075 vs. 2.354 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.
