Info from Zacks Investment Research, Inc.
"Return on Equity (ROE)" This week, I'll focus on another winning screening strategy that is both easy to build and easy to use with our Research Wizard program.
This one uses the Return on Equity (ROE) as one of the main components in our strategy.
ROE is one of the quickest ways to gauge whether a company is creating assets or gobbling up investors' cash.
ROE = income / common equity
For instance; if the ROE is 10%, then ten cents of assets are created for each shareholder dollar that was originally invested.
Knowing the company is generating assets on invested capital rather than burning thru it is a great starting point.
Parameters:
ROE >= 10
(The median ROE value for all of the stocks in the Zacks Universe is under 10. So any companies with shareholder equity less than this benchmark are disqualified.)
Zacks Rank = 1
(The Zacks Rank (which is considered by many to be the best rating system out there), looks at upward earnings estimates revisions (amongst other things), and will get us into companies whose forecasted earnings are getting stronger.)
% (Broker) Rating Stronfiltered= 100(%)
(Since broker ratings are typically skewed wildly to 'buy' and 'strong buy', I decided to cancel out any company where the brokers aren't fully on board.)
Price/Sales <= 1
(A low price to sales ratio (1 and below for example), is usually thought to be of better value, since the investor is paying less for each unit of sales.)
Price >= 5
(And for good measure, all of the stocks have to be trading at a minimum of $5 or higher. Most money managers won't touch anything under $5.)
