Dive Into DuPont Analysis and Pick the Top 5 Stocks


IIn a market where complacency levels can weaken at any time thanks to moves by central banks, the spread of the new COVID-19 variant, and overvaluation issues, picking the right security is a challenge. The return on equity metric goes a long way in solving this problem.

Sanderson Farms Inc. SAFM, Pool Corp. POOL, Asbury Automotive Group ABG, Expeditors International of Washington EXPD and Robert Half International RHI are some of the companies that win on these criteria.

The metric allows investors to differentiate between a profit generator and a profit generator. It is a profitability ratio that measures the profits that a company generates from its equity. But to refine this basic concept, we can land on DuPont’s analysis. This theory will take investors a step further and allow them to better choose quality stocks.

Here’s how DuPont breaks down ROE into its different components:

ROE = Net income / Equity

Net Income / Equity = (Net Income / Sales) * (Sales / Assets) * (Assets / Equity)

ROE = Profit margin * Asset turnover ratio * Equity multiplier

Why use DuPont?

Although the importance of the normal ROE calculation cannot be minimized, the fact remains that it does not always provide the complete picture. DuPont analysis, on the other hand, allows investors to assess which elements play a dominant role in any change in ROE. This can help investors separate companies with higher margins from those with high turnover. For example, high-end fashion brands typically survive on a high margin compared to retail products, which rely on higher revenue.

In fact, it also sheds light on the company’s leverage status, which can go a long way in selecting stocks that are ready for profit. A high ROE could be due to overuse of debt. Thus, the strength of a business can be deceptive if it is heavily indebted.

Thus, an investor confined only to an ROE prospect may be confused if he has to judge between two equities of equal ratio. This is where DuPont analysis wins and finds the best stock.

Investors can simply do this analysis by looking at the financial statements of the company. However, looking at each company’s financial statements separately can be a tedious task. Selection tools like Zacks Research Wizard can come to your rescue and help you pre-select stocks that look impressive with DuPont analysis.

Screening parameters

• Profit margin greater than or equal to 3: As the name suggests, it is a measure of the profitability of the business. In general, this is the main contributor to ROE.

• Asset turnover ratio greater than or equal to 2: It allows an investor to gauge the effectiveness of management in using assets to drive sales.

• Equity multiplier between 1 and 3: It is an indication of the amount of debt that the company uses to finance its assets.

• Rank of Zacks less than or equal to 2: Stocks with a Zacks # 1 (strong buy) or 2 (buy) ranking typically perform better than their peers in all types of market environment.

• Current price above $ 5: This filters out low-cost stocks. However, when looking for cheaper stocks, this criterion can be removed.

Here are five of the 17 actions that crossed the screen:

Sanderson Farms Inc. (SAFM): This Zacks Rank # 1 Sanderson Farms is a poultry processing company that operates 11 hatcheries, 9 feed mills and 12 processing plants, and 1 prepared chicken plant. You can see The full list of today’s Zacks # 1 Rank stocks here.

Additionally, Sanderson Farms sells ice packs, chilled packs, bulk packs and frozen chicken, whole, cut up and boneless, primarily under the Sanderson Farms brand to retailers, distributors, occasional restaurateurs and resale customers. frozen chicken in export markets. SAFM’s profit surprise for the last four quarters reached 496.29%.

Pool Corp. (POOL): This Zacks Rank 1 company is the world’s largest wholesale distributor of swimming pool supplies, equipment and related products.

Pool is one of the main regional distributors of irrigation and landscaping products. POOL’s profit surprise for the last four quarters is 56.29%.

Asbury Automotive Group (ABG): Zacks Rank # 1 Asbury Automotive is one of the largest automotive retailers.

Asbury Automotive also sells used vehicles through all franchise dealers and stand-alone stores. The surprise profit for ABG’s last four quarters is 24.33%.

Washington International Expeditors (EXPD): This Zacks Rank 1 company is a leading third party logistics service provider. EXPD is active in the field of global logistics management, including international freight forwarding and consolidation, for air and ocean freight.

The surprise profit for the last four quarters of Expeditors International in Washington is 29.14%.

Robert Half International (RHI): Zacks Rank # 1 Robert Half is one of the world’s largest providers of consulting and staffing services.

Robert Half’s specialist staffing divisions include Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources – for temporary, full-time, and senior project professionals, respectively, in the areas of accounting and finance. The surprise profit for RHI’s last four quarters is 20.50%.

You can get the rest of the stocks on this list by signing up now for your 2 week free trial of the Research Assistant and start using this screen in your own trading. In addition, you can also create your own strategies and test them out before you get into investing.

The Research Assistant is a great place to start. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your research assistant trial today. And the next time you read an economic report, open the research assistant, plug in your findings, and see what gems come out of it.

Click here to sign up for a free trial of the Research Assistant today.

Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.

Disclosure: Information on the performance of Zacks’ portfolios and strategies can be found at: https://www.zacks.com/performance.

5 actions in the process of doubling

Each has been handpicked by a Zacks expert as the # 1 favorite stock to earn + 100% or more in 2021. Previous recommendations have climbed + 143.0%, + 175.9%, +498 , 3% and + 673.0%.

Most of the stock in this report is flying under Wall Street’s radar, which provides a great opportunity to get into the ground floor.

Today, discover these 5 potential circuits >>

Click to get this free report

Pool Corporation (POOL): Free share analysis report

Expeditors International of Washington, Inc. (EXPD): Free Inventory Analysis Report

Robert Half International Inc. (RHI): Free Stock Analysis Report

Sanderson Farms, Inc. (SAFM): Free Stock Analysis Report

Asbury Automotive Group, Inc. (ABG): Free Inventory Analysis Report

To read this article on Zacks.com, click here.

Zacks investment research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


About Author

Comments are closed.