3 High Return on Equity Ratio Stock Picks to Consider
- By Alberto Abaterusso
When a company's return on equity (ROE) ratio outperforms the majority of its competitors, it usually implies that the company has been better than others in producing net profits.
Thus, investors may want to have a look at the following stocks, as they are outperforming most of their peer companies in terms of a higher ROE ratio.
Microsoft Corp
The first stock investors may want to have a look at is Microsoft Corp (NASDAQ:MSFT), a Redmond, Washington-based developer, manufacturer, licensor and seller of computer software, personal computers and consumer electronics.
Microsoft Corp has a ROE ratio of 40.2%, outperforming the industry median of 4.98% dramatically.
The share price has gained nearly 55% over the past year up to $223.29 at close on Thursday for a market capitalization of $1.69 trillion and a 52-week range of $132.52 to $232.86.
The stock has a price-book ratio of 13.82 (versus the industry median of 3.4) and a price-earnings ratio of 36.07 (versus the industry median of 30.43).
As of November, Wall Street recommends 14 strong buys, 13 buys, six holds and one sell rating for the stock. Sell-side analysts have established an average target price of $239.54 per share. Sell-side analysts also predict that the net earnings per share (EPS) will increase by 17.5% this year, 10.2% next year and by 14.53% per annum over the next five years.
GuruFocus has assigned a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10 to the company.
On Dec. 10, Microsoft Corp will pay a quarterly cash dividend of 56 cents per common share (up 9.8% from prior payment), generating a forward dividend yield of 1.01% as of Nov. 5.
Walmart Inc
The second stock investors may want to consider is Walmart Inc (NYSE:WMT), a Bentonville, Arkansas-based global discount stores giant.
Walmart Inc has a ROE ratio of 24.84%, which is outperforming the industry median of 7.01%.
The share price has risen by 19.3% over the past year up to $143.47 at close on Thursday for a market capitalization of $406.56 billion and a 52-week range of $102 to $151.33.
The stock has a price-book ratio of 5.4 (versus the industry median of 1.72) and a price-earnings ratio of 22.88 (versus the industry median of 19.9).
As of November, Wall Street recommends eight strong buy ratings, seven buy ratings, 15 hold ratings, one underperform rating and one sell rating for the stock. Sell-side analysts have also produced an average target price of $147.73 per share. The EPS is forecasted to increase by 8.1% this year, 5.3% next year and 6.41% every year over the next five years.
GuruFocus has assigned a financial strength rating of 6 out of 10 and a profitability rating of 7 out of 10 to the company.
Currently, Walmart Inc pays a quarterly cash dividend of 54 cents per common share to its shareholders with the next payment scheduled for Jan. 4, 2021. The distribution generates a forward dividend yield of 1.51% as of Nov. 5.
Adobe Inc
The third stock investors may want to have a look at is Adobe Inc (NASDAQ:ADBE), a San Jose, California-based software company.
Adobe Inc has a ROE ratio of 35.87%, which is outperforming the industry median of 4.98%.
The share price has risen by 70.7% over the past year up to $496.47 at close on Thursday for a market capitalization of $238.17 billion and a 52-week range of $255.13 to $536.88.
The price-book ratio is 20.35 (versus the industry median of 3.4) and the price-earnings ratio is 62.53 (versus the industry median of 30.43).
As of November, Wall Street recommends 11 strong buys, 14 buys and six hold ratings for the stock. Sell-side analysts have set an average target price of $552.03 per share. The EPS is predicted to increase by 26.3% this year, 12.3% in 2021 and 17.42% every year over the next five years.
GuruFocus has assigned a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10 to the company.
Currently, Adobe Inc does not pay dividends. The last quarterly cash dividend payment was made in April 2005.
Disclosure: I have no positions in any security mentioned in this article.
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This article first appeared on GuruFocus.
