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Looking to edge past the S&P 500 with your investments? A good starting point is delving into a company’s return on invested capital (ROIC). According to MarketWatch, ROIC stocks have historically outshone the index over two decades.
For instance, the S&P 500 delivered an average annual return of 9.8% in the last 20 years. Noteworthy performers, such as Apple (NASDAQ:AAPL) and Monster Beverage (NASDAQ:MNST), boasted remarkable gains of 37.1% and 36.7% annually during this period, aligning with their robust 20-year average ROIC figures of 33.0% and 32.5%, respectively.
ROIC, a metric calculable as a company’s net operating profit after tax (NOPAT) divided by invested capital (comprising debt and equity), allows investors to gauge operational efficiency and wealth creation prowess.
As an example, Monster Beverage exhibited a trailing 12-month ROIC of 21.3%, a tad below its five-year average of 25.1%, yet undeniably commendable.
Diving into the quest to uncover three S&P 500 stocks surpassing Monster’s ROIC percentage:
Booking Holdings (BKNG)
First in line is Booking Holdings (NASDAQ:BKNG), the online travel entity flaunting an impressive ROIC of 39.04%, more than doubling its five-year average. With shares soaring by 53% in the past year and 94% over the prior five years, it’s no wonder BKNG managed to outperform the index by threefold in 2023.
Analyst Aaron Kessler, from Seaport Research Partners, recently initiated coverage on BKNG, bestowing a Buy rating and a $4,380 target price, standing 18% above its current valuation. As per Barron’s, the stock continues to outshine the index, maintaining a lead of 165 basis points through February 20.
Despite facing challenging comparisons in preceding years, Booking Holdings remains fundamentally sound, backed by projected bookings growth of 10% in 2024 and 9% in 2025 – a reassuring sign of resilience post two record-breaking years in travel.
Its enterprise value of $130.1 billion, at 17.7x EBIT, stands below half its five-year average, showcasing potential undervaluation prospects for astute investors.
NVR (NVR)
Following the heels is NVR (NYSE:NVR), a homebuilder headquartered in Virginia, flaunting an ROIC of 35.75% – 390 points higher than its prior five-year average. Rising by 48% in the past year and 177% over five years, NVR’s shares depict an upward trajectory.
Markedly, NVR’s recent $750 million share repurchase program, devoid of expiration dates, underscores management’s confidence in its value. Additionally, Q4 2023 results showcased the company’s exemplary performance, despite a slight dip in homebuilding revenues offset by gains in its mortgage banking income.
As cancellations ease and units sold reach 10,229, NVR’s positioning itself as a resilient player within the industry.
EOG Resources (EOG)
Lastly, we turn to EOG Resources (NYSE:EOG), a Houston-based oil and gas enterprise tracing its roots back to Enron Oil and Gas, spun off from Enron Corp. in 1999.
EOG presently touts an ROIC of 26.22%, nearly double its five-year average. While shares experienced a minor 5% dip in the last year, a 18% rise over five years points to potential growth.
Recent optimism around EOG’s performance is illustrated by analyst estimates of close to $24 billion in revenue for 2024 and projected EPS of $11.73. Trading at a modest 9.7x earnings estimate, the stock appears attractively valued.
With 35 analysts covering EOG, 22 rate it a Buy, with a target price of $139.63 – indicating a significant upside from its current value.
EOG’s enterprise value of $65.04 billion, at 6.4x EBIT, presents an undervaluation scenario compared to its historical averages, potentially appealing to discerning investors.
On disclosure, the author Will Ashworth does not hold positions in the securities discussed in this article. The views expressed are personal and align with the InvestorPlace.com Publishing Guidelines.
The views expressed are the author’s own and do not necessarily reflect those of Nasdaq, Inc.
