Find strong stocks to buy in the second half with this ROE screen – July 6, 2022
Stocks rebounded in the afternoon on Tuesday after the S&P 500 and the Dow Jones both fell more than 2% in the morning on growing recession fears. Both mounted returns that saw the S&P 500 end up closing the day up 0.16%, while the Dow fell just 0.42%. The tech-heavy Nasdaq jumped 1.75%.
Tuesday afternoon’s return did not include oil and energy stocks, which fell alongside other economically sensitive companies on growing recession concerns. Oil prices fell 8% on Tuesday to below $100 a barrel as Wall Street stepped up bets that the U.S. and global economy was headed for a major slowdown.
Oil is now trading at its lowest levels since early May and Citi came out on Tuesday and said oil could fall to $65 a barrel by the end of the year if the economy slips into a recession at full share. Falling prices and lower projections could indicate that Wall Street is betting that inflation has finally peaked and consumers will slow down their spending.
On the positive side, current projections call for the US economy to add 250,000 jobs in June and the unemployment rate to remain near historic lows at 3.6%. While this would mark a big pullback from May’s 390,000, it still exhibits solid expansion.
Wall Street will have more information by the end of July as the second-quarter earnings season heats up. Also, the Fed is meeting again towards the end of the month. In the meantime, investors looking to add stocks in the second half should consider buying companies that have proven they can turn assets into earnings amid unknowns and fears of recession.
Return on equity or ROE helps investors understand whether a company’s executives are creating assets with investors’ money or burning it. ROE shows a company’s ability to turn its assets into profits. In other words, this essential metric measures the profit made for every dollar of equity.
ROE is calculated as net income / equity. For example: if $0.10 of assets are created for every $1 of equity, this would equate to an ROE of 10%.
Overall, return on equity is a great metric to use, no matter what type of investor you are, as it provides insight into management’s ability to create value and control costs. . Also, if the ROE is slipping, it can alert us to potential issues.
That said, let’s take a look at the metrics on this screen and see companies prove they can return shareholder value instead of wasting their money…
• Zacks rank equal to 1
The Zacks Ranking looks at upward revisions to earnings estimates, among other metrics, to find companies that should see earnings strengthen. In fact, starting with a Zacks Rank #1 can be a great place to start as it has averaged over 25% annual returns over the past 30 years.
• Price greater than or equal to 5
Today, we’ve excluded all stocks trading below $5 per share, as they can be more volatile and speculative.
• Price/sales ratio less than or equal to 1
On top of that, we are looking for a low price/sales ratio. Today we opted for 1 or less because this range is generally considered to offer better value, as investors pay less for each unit sold.
• % (Broker) Strong Buy Rating equal to 100 (%)
In this screen, we decided to go with companies that brokers fully agree with, as the ratings are usually heavily biased towards “buy” and “buy hard”.
• ROE greater than or equal to 10
Last but not least for today’s screen, we’ve gotten rid of all companies with return on equity below 10 because the median ROE value for all stocks in the Zacks universe is lower at 10.
Here are two of the 13 stocks that crossed the screen today…
Griffin (GFF – Free report)
Griffon Corporation is a diversified management and holding company that operates through wholly-owned subsidiaries. GFF operates in two broader reportable segments. Griffon’s Consumer and Professional Products unit includes branded consumer and professional tools, as well as residential, industrial and commercial fans, home storage and organization products, and more. Meanwhile, its Home and Building Products division offers garage doors, steel rolling doors and more.
Griffon beat our second-quarter financial estimates at the end of April, smashing our adjusted EPS estimate by 200% for the second consecutive quarter. GFF stock soared after the release on strong guidance. Zacks estimates his revenue is expected to climb 19% this year and another 8% next year. Meanwhile, its adjusted earnings are expected to jump 118% and 5%, respectively. GFF also pays dividends and announced on June 27 a special cash dividend of $2.00 per share which will be payable on July 20 to shareholders of record at the close on July 8.
Bluegreen Vacations Holding Corporation (BVH – Free report)
Bluegreen Vacations is one of the leading vacation ownership companies. Bluegreen Vacations markets and sells Vacation Ownership Interests (“VOI”) and manages resorts in popular leisure and urban destinations. Bluegreen Vacations has blown our Zacks adjusted earnings estimates in three of the past four quarters, including a 43% beat in net income at the start of May.
Bluegreen Vacations had a great comeback year in 2021 as people got back to their normal lives, with revenue up 46%. Zacks’ estimates call for the company to follow that with another 11% sales growth in 2022 and a 3% revenue increase in 2023 to see it pull in $869 million. Meanwhile, its adjusted earnings are expected to climb 35% this year and more than 11% in FY23 to $4.20 per share. BVH shares have jumped 50% in the past year and 100% in the past 24 months. And its dividend is yielding 2.4% right now.
Get the rest of the stocks on this list and start searching for the newest companies that meet these criteria. It is easy to do. And it could help you find your next big winner. Start selecting these companies today with a free trial of Search Assistant. You can do it.
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Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance/