At the large cap level, many of the companies appear to have reached the ceiling on their growth potential. But not all. Some of the most successful large caps continue to be industry leaders by driving innovation, expanding into new markets, and introducing new products. Today, we searched for large cap companies with the following traits: minimal debt and consistently strong profits. This is a combination that typically points to a company that has effective management in place, smart business strategies, and is not hindered by paying off debt. We think you will be intrigued by what we found.
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
We first looked for large cap stocks. We next screened for businesses that have strong profitability relative to their asset base (ROA [TTM]>10%)(ROE [TTM]>30%). We then screened for businesses that operate with little to no debt (D/E Ratio<.1). We did not screen out any sectors.
Do you think these large-cap stocks will go up in price? Use this list as a starting-off point for your own analysis.
1) Ross Stores Inc. (NASDAQ:ROST)
|Return on Assets||21.97%|
|Return on Equity||47.03%|
Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. Its Ross Dress for Less brand stores sell brand and designer apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20 to 60 percent off department and specialty store regular prices; and dd's DISCOUNTS brand stores sell apparel, accessories, footwear, and home fashions for the entire family at everyday savings of 20 to 70 percent off moderate department and discount store regular prices.
As of January 28, 2012, the company operated 1,125 stores, of which 1,037 were Ross Dress for Less brand stores in 29 states, the District of Columbia, and Guam; and 88 were dd's DISCOUNTS brand stores in 7 states. Its Ross Dress for Less brand stores primarily target middle income households and dd's DISCOUNTS brand stores target moderate income households. Ross Stores, Inc. was founded in 1957 and is headquartered in Pleasanton, California.
2) Accenture plc (NYSE:ACN)
|Industry||Information Technology Services|
|Return on Assets||18.87%|
|Return on Equity||66.17%|
Accenture plc operates as a management consulting, technology services, and outsourcing company worldwide. It offers various management consulting services, which include customer relationship management, finance and enterprise performance management, risk management, supply chain management, talent and organization management, strategy, and operations related services.
The company also provides various system integration consulting services comprising enterprise solutions and enterprise resource planning, industry and functional solutions, information management services, cloud computing, custom solutions, software as a service, mobility services, and other business solutions. In addition, it offers technology consulting services, which include IT strategy, infrastructure consulting, IT security consulting, and application modernization and optimization; IT outsourcing services that comprise application outsourcing services, including managing custom or packaged software applications for enterprise-wide applications, as well as infrastructure outsourcing, such as service desk, workplace, data-center, network, security, and IT spend management services.
Further, the company provides business process outsourcing services for business functions and/or processes comprising finance and accounting, human resources, learning, and procurement. It serves communications, electronics, high technology, media and entertainment, banking, capital markets, insurance, health, public service, automotive, consumer goods and services, industrial equipment, infrastructure and transportation services, life sciences, retail, airlines, freight, and logistics industries. Accenture plc is based in Dublin, Ireland.
3) Mastercard Incorporated (NYSE:MA)
|Return on Assets||20.87%|
|Return on Equity||36.11%|
MasterCard Incorporated, a payments and technology company, together with its subsidiaries, provides transaction processing and other payment-related services in the United States and internationally. Its payment solutions include payment programs, product development, payment processing technology, payment security, consulting, and information services and marketing.
The company provides transaction processing services comprising transaction switching, which include authorization, clearing, and settlement; connectivity services, such as network access, equipment, and the transmission of authorization and settlement messages; and other payment-related services, including products used to prevent or detect fraudulent transactions, cardholder services, professional consulting and research services, compliance and penalty, account and transaction enhancement services, holograms, and publication services. It also manages and licenses payment card brands, including MasterCard, Maestro, and Cirrus.
The company offers its payment solutions to develop and implement credit, debit, prepaid, and related payment programs and solutions for financial institutions, merchants, government entities, and telecommunications companies. MasterCard Incorporated was founded in 1966 and is headquartered in Purchase, New York.
4) Reed Elsevier plc (RUK)
|Industry||Publishing - Periodicals|
|Return on Assets||44.93%|
|Return on Equity||44.92%|
Reed Elsevier PLC provides professional information solutions worldwide. The company's Elsevier segment offers scientific, technical, and medical information solutions. This segment publishes science and technology research articles and book titles; and abstract and citation database of research literature, as well as offers information and workflow tools that help researchers generate insights in the advancement of scientific discovery.
The Elsevier segment also provides medical journals, books, reference works, databases, and online information tools to medical researchers, doctors, nurses, allied health professionals, students, hospitals, research institutions, health insurers, managed healthcare organizations, and pharmaceutical companies. Its LexisNexis Risk Solutions segment offers data and analytics for the insurance industry; risk management, identity verification, fraud detection, credit risk management, and compliance solutions for financial institutions; investigative solutions; and employment-related, resident and volunteer screening services.
The company's Lexisnexis Legal and Professional segment provides legal, tax, regulatory, and business information solutions. Its Reed Exhibitions segment organizes exhibitions and conferences for the broadcasting, TV, music, and entertainment; building and construction; electronics and electrical engineering; alternative energy, oil, and gas; engineering, manufacturing, and processing; gifts; interior design; IT and telecoms; jewelry; life sciences and pharmaceuticals; marketing; property and real estate; sports and recreation; and travel sectors.
The company's Reed Business Information segment provides data services, information, and marketing solutions to business professionals; produces industry critical data services, lead generation tools, and online community and job sites; and publishes business magazines. Reed Elsevier PLC was founded in 1894 and is based in London, the United Kingdom.
5) Coach, Inc. (NYSE:COH)
|Industry||Textile - Apparel Footwear & Accessories|
|Return on Assets||36.20%|
|Return on Equity||57.63%|
Coach, Inc. designs and markets accessories and gifts for women and men in the United States and internationally. It primarily offers handbags, women's and men's bag, accessories, business cases, footwear, wearables, jewelry, sunwear, travel bags, watches, and fragrance products.
The company's accessories, include money pieces, wristlets, cosmetic cases, wallets, card cases, time management and electronic accessories, key rings, charms, and women's and men's belts; business cases, such as computer bags, messenger-style bags, and totes; wearables comprise jackets, sweaters, gloves, hats, and scarves; jewelry consisting of bangle bracelets, necklaces, rings, and earrings; and luggage and related accessories, such as travel kits and valet trays. It provides women's fragrance collections, including eau de perfume spray, eau de toilette spray, purse spray, body lotion, and body splashes.
The company operates stores in North America, Japan, Hong Kong, Macau, and mainland China, as well as sells through the Internet and the Coach catalog. It also sells its products to wholesale customers and distributors in approximately 20 countries. As of July 2, 2011, it had 345 retail and 143 factory leased stores located in North America; 169 Coach-operated department store shop-in-shops, retail stores, and factory stores in Japan; and 66 Coach-operated department store shop-in-shops, retail stores, and factory stores in Hong Kong, Macau, and mainland China. The company was founded in 1941 and is headquartered in New York, New York.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/25/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.