The broader equity markets mostly trended down on average over the past few trading days as President Trump indicated that his proposed tariffs on Canada and Mexico would be imposed from today. The 25% levy on imports from each of the neighboring countries with an additional 10% tariff on China, which doubled the 10% duty slapped on Beijing in early February, dashed investors’ hopes of a last-minute deal and triggered a downslide. Although Trump had earlier indicated that reciprocal tariffs on foreign countries would not be imposed immediately, the sudden change in the trade policies toward two of its closest allies is likely to have a ripple effect across the globe.

Moreover, soft economic data for February 2025 for the manufacturing and construction sectors cast aspersions on the state of the U.S. economy. As investors employ a wait-and-see approach in a classic example of “backing and filling” in the market, they can benefit from “cash cow” stocks that garner higher returns. However, identifying cash-rich stocks alone does not make for a solid investment proposition unless it is backed by attractive efficiency ratios like return on equity (ROE). A high ROE ensures that the company is reinvesting cash at a high rate of return. KLA Corporation KLAC, Leidos Holdings, Inc. LDOS, Raymond James Financial, Inc. RJF, Fortinet, Inc. FTNT and Pilgrim's Pride Corporation PPC are some of the stocks with high ROE to profit from.

ROE: A Key Metric

ROE = Net Income/Shareholders’ Equity

ROE helps investors distinguish profit-generating companies from profit burners and is useful in determining the financial health of a company. In other words, this financial metric enables investors to identify companies that diligently deploy cash for higher returns.

Moreover, ROE is often used to compare the profitability of a company with other firms in the industry — the higher, the better. It measures how well a company is multiplying its profits without investing new equity capital and portrays management’s efficiency in rewarding shareholders with attractive risk-adjusted returns.

Screening Parameters

In order to shortlist stocks that are cash-rich with high ROE, we have added Cash Flow greater than $1 billion and ROE greater than X-Industry as our primary screening parameters. In addition, we have taken a few other criteria into consideration to arrive at a winning strategy.

Price/Cash Flow lesser than X-Industry: This metric measures how much investors pay for $1 of free cash flow. A lower ratio indicates that investors need to pay less for a better cash flow-generating stock.

Return on Assets (ROA) greater than X-Industry: This metric determines how much profit a company earns for every dollar of asset, which includes cash, accounts receivable, property, equipment, inventory and furniture. The higher the ROA, the better it is for the company.

5-Year EPS Historical Growth greater than X-Industry: This criterion indicates that continued earnings momentum has translated into solid cash strength.   

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.

Here are five of the 13 stocks that qualified the screening:

KLA Corporation: San Jose, CA-based KLA Corporation is an original equipment manufacturer of process diagnostics and control equipment and yield management solutions required for the fabrication of semiconductor integrated circuits or chips. The company has a comprehensive portfolio of products addressing each major PDC subsegment — photomask (reticle) inspection, wafer inspection/defect review and metrology.

It has a long-term earnings growth expectation of 15.6% and delivered a trailing four-quarter earnings surprise of 6.4%, on average. KLA Corporation carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. 

Leidos: Delaware-based Leidos is a global science and technology leader serving the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in cybersecurity, data analytics, enterprise IT modernization, operations and logistics, sensors, collection and phenomenology, software development and systems engineering.

The company has a long-term earnings growth expectation of 7.4% and delivered a trailing four-quarter earnings surprise of 28.3%, on average. It has a VGM Score of A. Leidos carries a Zacks Rank #2. 

Raymond James: Based in St. Petersburg, FL, Raymond James is a diversified company that provides financial services mainly in the United States and Canada. The company has approximately 8,800 financial advisors with total client assets of $1.54 trillion.

It has a long-term earnings growth expectation of 15.4% and delivered a trailing four-quarter earnings surprise of 7.8%, on average. It has a VGM Score of B. Raymond James carries a Zacks Rank #2.

Fortinet: Headquartered in Sunnyvale, CA, Fortinet is a provider of network security appliances and Unified Threat Management network security solutions to enterprises, service providers and government entities worldwide. Its solutions are designed to integrate multiple levels of security protection, including firewall, virtual private networking, antivirus, intrusion prevention, web filtering, anti-spam and wide area network acceleration.

The company has a long-term earnings growth expectation of 13% and delivered a trailing four-quarter earnings surprise of 24.8%, on average. Fortinet carries a Zacks Rank #2.

Pilgrim's Pride: This Greeley, CO-based Pilgrim's Pride is engaged in the processing, production, marketing and distribution of frozen, fresh and value-added chicken products. The company offers its services in the United States, Mexico, France, the Netherlands, Puerto Rico and Mexico through several distributors, retailers and food service operators. 

The company delivered a trailing four-quarter earnings surprise of 25.7%, on average. It has a VGM Score of A. Pilgrim's Pride sports a Zacks Rank #1.

You can get the rest of the stocks 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.

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KLA Corporation (KLAC) : Free Stock Analysis Report

Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report

Raymond James Financial, Inc. (RJF) : Free Stock Analysis Report

Fortinet, Inc. (FTNT) : Free Stock Analysis Report

Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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