Bet on DuPont Analysis & Pick 5 Quality Stocks

The S&P 500 has just seen its worst week since September due to “tariff fatigue” and fears of severe economic slowdown. Concerns of a future rally remain in place. Investors seek clear signals on trade policies. Analysts suggest that the Federal Reserve is unlikely to rush into cutting interest rates as the central bank will look for more cues regarding the stabilization in the inflation scenario amid trade tensions.As a result, it is intriguing to pick quality stocks at the current stressed investing backdrop. Upbeat return on equity (ROE) can serve as one such quality measure. Let’s delve a little deeper.Inside the Strength of Return on Equity MeasureReturn on equity is one of the most favored metrics of investors. It is a profitability ratio that measures earnings generated by a company from its equity. Investors can follow the ROE trend in companies and compare this to historical or industry benchmarks to pick a winning stock.However, stepping beyond the basic ROE and analyzing it at an advanced level could lead to even better returns. Here is where the DuPont analysis comes into play. It is an analytical method, which examines three major elements — operating management, management of assets and the capital structure — related to the financial condition of a company. Below, we show how DuPont breaks down ROE into its different components:ROE = Net Income/EquityNet Income / Equity = (Net Income / Sales) * (Sales / Assets) * (Assets / Equity)ROE = Profit Margin * Asset Turnover Ratio * Equity MultiplierThe screener yields winning stocks like Tap Hims & Hers Health HIMS, Blue Bird BLBD, EMCOR Group EME, EverQuote EVER and Sprouts Farmers Market SFM.Why Use DuPont?Although one can’t play down the importance of normal ROE calculation, the fact remains that it doesn’t always provide a complete picture. The DuPont analysis, on the other hand, allows investors to assess the elements that play a dominant role in any change in ROE. It can help investors to segregate companies having higher margins from those having high turnover. For example, high-end fashion brands generally survive on high margins as compared with retail goods, which rely on higher turnover.In fact, it also sheds light on the company’s leverage status, which can go a long way in selecting stocks poised for gains. A lofty ROE could be due to the overuse of debt. Thus, the strength of a company can be misleading if it has a high debt load.So, an investor confined solely to an ROE perspective may be confused if he or she has to judge between two stocks of equal ratio. This is where DuPont analysis wins over and spots the better stock.Investors can simply do this analysis by taking a look at the company’s financials.However, looking at the financial statements of each company separately can be a tedious task. Screening tools like Zacks Research Wizard can come to your rescue and help you shortlist the stocks that look impressive with a DuPont analysis.Screening Parameters• Profit Margin more than or equal to 3: As the name suggests, it is a measure of how profitably the business is running. Generally, it is the key contributor to ROE.• Asset Turnover Ratio more than or equal to 2: It allows an investor to assess management’s efficiency in using assets to drive sales.• Equity Multiplier between 1 and 3: It’s an indication of how much debt the company uses to finance its assets.• Zacks Rank less than or equal to 2: Stocks having a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environment.• Current Price more than $5: This screens out the low priced stocks. However, when looking for lower priced stocks, this criterion can be removed.Here are all five stocks that made it through the screen:Hims & Hers Health: This Zacks Rank #2 company is a consumer-centric health and wellness platform that redefines healthcare through personalized solutions and seamless digital access. You can see the complete list of today’s Zacks #1 Rank stocks here.The average four-quarter earnings surprise of HIMS is 40.42%.Blue Bird: This Zacks Rank #2 company is engaged in the designing, engineering, manufacturing and sale of school buses and related parts.The average earnings surprise of BLBD for the past four quarters is 49.64%.EverQuote: This Zacks Rank #1 company is an online insurance marketplace.The average earnings surprise of EVER for the past four quarters is 160.73%.EMCOR Group: This Zacks Rank #2 company is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services for a diverse range of businesses.EMCOR Group serves commercial, industrial, utility and institutional clients. The average earnings surprise of EME for the past four quarters is 28.95%.Sprouts Farmers Market: This Zacks Rank #2 company operates in a highly fragmented grocery store industry. It has a unique model that features fresh produce, a foods section, and a vitamin department focused on overall wellness.The average earnings surprise of SFM for the past four quarters is 15.12%.You can get the remaining stock on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.Click here to sign up for a free trial to the Research Wizard today.Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.   5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report EMCOR Group, Inc. (EME): Free Stock Analysis Report EverQuote, Inc. (EVER): Free Stock Analysis Report Sprouts Farmers Market, Inc. (SFM): Free Stock Analysis Report Blue Bird Corporation (BLBD): Free Stock Analysis Report Hims & Hers Health, Inc. (HIMS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks