There is a lot more to profitability than whether a company’s bottom line is increasing. Profits can come from several sources, with some better than others. To get a deeper look into a company’s profit trends, we performed DuPont analysis on stocks that have been underperforming the market, with negative performance over the last quarter. DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:
ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
We therefore focus on companies with the following positive characteristics -- increasing ROE, along with:
- Decreasing leverage, i.e. decreasing Asset/Equity ratio
- Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.
?Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
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Do you think these stocks will soon make a comeback? Use this list as a starting point for your own analysis.
List sorted by change in ROE.
1. Morgan Stanley (MS): Provides various financial products and services to corporations, governments, financial institutions, and individuals worldwide. Market cap of $29.74B. The stock has lost 0.71% over the past quarter. MRQ Net Profit Margin increased to 19.12% from 1.55% year-over-year, Sales/Assets increased to 0.0145 from 0.0101, while Assets/Equity decreased to 12.86 from 14.79. It's been a rough couple of days for the stock, losing 7.18% over the last week.
2. AngloGold Ashanti Ltd. (AU): Engages in the exploration and production of gold. Market cap of $17.01B. The stock has lost 3.26% over the past quarter. MRQ Net Profit Margin increased to 25.43% from 3.59% year-over-year, Sales/Assets increased to 0.18 from 0.14, while Assets/Equity decreased to 2.17 from 2.64. The stock has lost 9.48% over the last year.
3. Silver Wheaton Corp. (SLW): Operates as a silver streaming company worldwide. Market cap of $11.35B. The stock has lost 18.28% over the past quarter. MRQ Net Profit Margin increased to 72.92% from 25.50% year-over-year, Sales/Assets increased to 0.07 from 0.04, while Assets/Equity decreased to 1.09 from 1.27. The stock has lost 17.94% over the last year.
4. Equity Residential (EQR): Engages in the acquisition, development, and management of multifamily properties in the United States. Market cap of $16.25B. The stock has lost 9.72% over the past quarter. MRQ Net Profit Margin increased to 21.07% from 6.34% year-over-year, Sales/Assets increased to 0.0325 from 0.0282, while Assets/Equity decreased to 2.75 from 3.39. The stock is a short squeeze candidate, with a short float at 5.42% (equivalent to 5.84 days of average volume). The stock has gained 7.68% over the last year.
5. BHP Billiton Ltd. (BHP): Industrial Metals & Minerals Industry. Market cap of $193.30B. The stock has lost 6.60% over the past quarter. MRQ Net Profit Margin increased to 34.93% from 15.96% year-over-year, Sales/Assets increased to 0.37 from 0.26, while Assets/Equity decreased to 1.81 from 1.97. It's been a rough couple of days for the stock, losing 5.34% over the last week.
6. Baker Hughes Incorporated (BHI): Supplies wellbore related products, and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the oil and natural gas industry worldwide. Market cap of $21.21B. The stock has lost 15.63% over the past quarter. MRQ Net Profit Margin increased to 13.63% from 6.25% year-over-year, Sales/Assets increased to 0.21 from 0.18, while Assets/Equity decreased to 1.57 from 1.63. It's been a rough couple of days for the stock, losing 11.15% over the last week.
7. Rio Tinto plc (RIO): Engages in finding, mining, and processing mineral resources. Market cap of $92.21B. The stock has lost 13.45% over the past quarter. MRQ Net Profit Margin increased to 26.11% from 8.62% year-over-year, Sales/Assets increased to 0.24 from 0.20, while Assets/Equity decreased to 1.95 from 4.07. Might be undervalued at current levels, with a PEG ratio at 0.67, and P/FCF ratio at 9.46. It's been a rough couple of days for the stock, losing 7.18% over the last week.
8. Las Vegas Sands Corp. (LVS): Develops, and operates various integrated resort properties primarily in the United States, Macau, and Singapore. Market cap of $29.31B. The stock has lost 10.68% over the past quarter. MRQ Net Profit Margin increased to 17.63% from 11.24% year-over-year, Sales/Assets increased to 0.11 from 0.09, while Assets/Equity decreased to 2.68 from 3.07. It's been a rough couple of days for the stock, losing 6.59% over the last week.
9. Avalonbay Communities Inc. (AVB): Engages in the development, redevelopment, acquisition, ownership, and operation of multifamily communities in the United States. Market cap of $11.70B. The stock has lost 6.96% over the past quarter. MRQ Net Profit Margin increased to 17.85% from 10.93% year-over-year, Sales/Assets increased to 0.0296 from 0.0294, while Assets/Equity decreased to 2.05 from 2.33. The stock is a short squeeze candidate, with a short float at 10.67% (equivalent to 10. days of average volume). The stock has gained 13.06% over the last year.
10. Priceline.com Incorporated (PCLN): Operates as an online travel company. Market cap of $23.66B. The stock has lost 9.11% over the past quarter. MRQ Net Profit Margin increased to 32.32% from 22.26% year-over-year, Sales/Assets increased to 0.38 from 0.36, while Assets/Equity decreased to 1.60 from 1.68. The stock has performed poorly over the last month, losing 10.03%.
11. Symantec Corporation (SYMC): Provides security, storage, and systems management solutions to secure and manage information. Market cap of $11.68B. The stock has lost 3.0% over the past quarter. MRQ Net Profit Margin increased to 10.83% from 9.19% year-over-year, Sales/Assets increased to 0.14 from 0.13, while Assets/Equity decreased to 2.60 from 2.62. The stock has lost 7.53% over the last year
12. The Mosaic Company (MOS): Engages in the production and marketing of concentrated phosphate- and potash-based crop nutrients for the agriculture industry worldwide. Market cap of $22.33B. The stock has lost 28.75% over the past quarter. MRQ Net Profit Margin increased to 17.06% from 13.60% year-over-year, Sales/Assets increased to 0.19 from 0.17, while Assets/Equity decreased to 1.32 from 1.45. The stock has performed poorly over the last month, losing 11.11%.
13. Boston Properties Inc. (BXP): A real estate investment trust (REIT), together with its subsidiaries, engages in the ownership and development of office properties. Market cap of $13.78B. The stock has lost 5.90% over the past quarter. MRQ Net Profit Margin increased to 15.59% from 14.92% year-over-year, Sales/Assets increased to 0.0324 from 0.0296, while Assets/Equity decreased to 2.90 from 2.92. The stock is a short squeeze candidate, with a short float at 7.98% (equivalent to 8.26 days of average volume). The stock has gained 13.47% over the last year.
14. Baxter International Inc. (BAX): Develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. Market cap of $28.06B. The stock has lost 7.20% over the past quarter. MRQ Net Profit Margin increased to 16.56% from 16.28% year-over-year, Sales/Assets increased to 0.19 from 0.18, while Assets/Equity decreased to 2.57 from 2.69. The stock has gained 1.16% over the last year.
Accounting data sourced from Google Finance; all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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