Stocks with Strong Profitability: An Investor’s Guide Find Great Stocks to Buy that are Efficiently Generating Profits

Published On: January 23, 2024 6:07 pm

The S&P 500 has been soaring to new heights as Wall Street eagerly anticipates the release of quarterly earnings reports from the tech giants, providing crucial insights into the economic landscape, both domestic and global, for the first quarter of 2024.

While concerns have been raised about the market being overly dependent on the remarkable performance of mega-cap tech and the Magnificent 7, it’s heartening to note that the rally is inclusive, with eight out of the 11 S&P 500 sectors showing positive growth over the past 12 months. Furthermore, all sectors except Energy have shown solid gains over the last three months.

As long as Q1 2024 earnings outlook remains strong and inflation stays in check, the bulls are likely to maintain their grip on the market. Additionally, any pullback of the S&P 500 and the Nasdaq to crucial moving averages could prompt a swift buying response, as investors of all stripes seek to avoid missing out on a potential extended rally in 2024.

Despite this optimism, investors must exercise due diligence and seek out stocks with the potential to outperform. Let’s delve into the process of identifying Zacks Rank #1 (Strong Buy) stocks with a proven track record of efficiently generating profits, which could be worthwhile investments in 2024.

Evaluating Efficiency: ROE

Return on Equity (ROE) is a key metric for investors to gauge a company’s ability to generate profits from shareholders’ equity. It measures the capacity of a company to convert assets into earnings, revealing the value creation by management and cost control. A declining ROE can serve as an early warning signal for potential issues.

Finding Top Stocks: Screening Criteria

To identify robustly performing stocks, certain screening parameters are used:

Zacks Rank equal to 1: This ranking takes into account upward earnings estimate revisions and other metrics to pinpoint companies expected to experience enhanced earnings, historically averaging over 25% annual returns over the past 30 years.
Price greater than or equal to 5: To minimize volatility and speculation, stocks trading below $5 are excluded.
Price/Sales Ratio less than or equal to 1: A low price-to-sales ratio, typically 1 or below, is sought as it signifies better value, with investors paying less for each unit of sales.
% (Broker) Rating Strong Buy equal to 100 (%): Companies with full endorsement from brokers are favored, given the skew towards ‘buy’ and ‘strong buy’ ratings.
ROE greater than or equal to 10: Companies with a robust Return on Equity of at least 10 are preferred, considering that the median ROE value for all stocks in the Zacks Universe is below 10.

Uncovering Value: Arcos Dorados Holdings Inc. (ARCO)

Arcos Dorados Holdings Inc., the world’s largest independent McDonald’s (MCD) franchisee, reports an impressive Return on Equity (ROE) rate of 49%, significantly surpassing the 3.3% industry average in Retail – Restaurants. Operating over 2,300 restaurants, Arcos Dorados holds the exclusive rights to own, operate, and franchise McDonald’s outlets across 20 nations in Latin America and the Caribbean. The company also offers a dividend yield of approximately 1.3%.

Zacks Investment Research

Image Source: Zacks Investment Research

Arcos Dorados delivered a remarkable 50% beat on our Q3 FY23 earnings estimate in November, bolstered by an optimistic bottom line outlook, securing a Zacks Rank #1 (Strong Buy) rating. This recent positive trajectory is part of a sustained pattern of upward earnings revisions over the past two years.

Arcos Dorados Stands Strong in Sizzling Stock Surge

In the realm of ever-evolving investments, the stock market serves as the ultimate test kitchen, swirling together various industries while serving up a feast of companies that leave investor’s mouths watering. For over a year, Arcos Dorados Holdings Inc. (ARCO) stock has simmered and sizzled, and now investors are clamoring for a seat at the table.

Robust Projected Growth

Arcos Dorados is projected to soar with adjusted earnings expected to rise by 19% in FY23 and a further 16% in FY24. This growth is underpinned by a formidable revenue increase of 19% and 11% in the respective years, showcasing a robust financial trajectory that has caught the eye of many investors.

Arcos Dorados Stock Performance

Despite the erratic undulations of the stock market, Arcos Dorados stock has ascended by over 40% in the past 12 months, leaving the S&P 500 and its industry’s mere 4% climb in the dust. Over the past five years, ARCO shares have surged by a resounding 46%, outpacing its industry and the broader Zacks Retail-Wholesale Sector with a display of unwavering strength.

Valuation and Future Prospects

Valuation-wise, ARCO trades at a compellingly attractive approximately 45% discount to its industry and its sector, including McDonald’s, at 12.8X forward 12-month earnings. This blend of financial muscle and favorable valuation suggests that Arcos Dorados is primed for a sustained period of growth and offers an enticing opportunity for potential investors.

Looking beyond the numbers, one can discern a captivating narrative of resilience, determination, and triumph. Arcos Dorados’ stock surge is not merely a flash in the pan but rather the result of a company with strong foundations and a strategic vision.

Conclusion

Arcos Dorados stands as a beacon in the investor’s universe, a testament to the enduring fortitude of well-positioned companies navigating the tumultuous waters of the stock market. The company’s calculated trajectory and robust performance are compelling evidence of its potential to continue soaring to new heights in the years to come.

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