The Most Efficient Companies on the Planet

These days, success isn't just about working hard. It's more about working hard and efficiently. So why not apply that strategy to your investments?

To measure a company's efficiency, you can examine its return on equity (ROE): its profit margin, multiplied by its asset turnover, further multiplied by its financial leverage. ROE measures how efficiently the company employs its owners' capital -- your bang per buck as an investor. Take Colgate-Palmolive (NYSE: CL  ) or Altria (NYSE: MO  ) both of which boast ROEs of 70% or more. That's a lot of concentrated bang.

Companies can juice their ROE by employing more debt, so it's important to consider a company's debt level when looking at ROE. All things being equal, though, the higher the ROE, the better: A higher ROE means a more efficient company, which in turn means a more effective executive team managing the business. You should consider companies like these for your portfolio.

To uncover some of the most efficient companies around, I ran a screen using The Motley Fool's CAPS screening tool. I looked for companies with:

  • CAPS ratings of four and the maximum five stars. The high ratings indicate the companies are more likely to outperform the market.
  • ROEs of 25% or greater.
  • Market caps of $500 million or greater, to keep us out of microcap land.

Here are seven companies that I like:

Company

Return on Equity (TTM)

Market Cap
(in billions)

CAPS Rating
(out of 5)

Altria

76.6%

$47.5

****

Amerigas Partners (NYSE: APU  )

39.4%

$2.5

****

Buckle (NYSE: BKE  )

34.5%

$1.1

****

Campbell Soup (NYSE: CPB  )

73.2%

$12.5

****

Colgate-Palmolive

88.3%

$36.7

*****

Freeport-McMoRan (NYSE: FCX  )

41.7%

$31.5

****

General Mills (NYSE: GIS  )

28.3%

$22.8

****

Data from Motley Fool CAPS. TTM = trailing 12 months.

While the stock screener is a great tool, it should be only the first step in your research. Examining other levers of specific companies, such as return on invested capital, liquidity, and debt-to-equity ratios, will also help you determine if a company is right for your portfolio. When you include those other metrics in your analysis, you'll get a fuller picture of whether that company is worth buying.

Start increasing the efficiency of your investments at Motley Fool CAPS today. Let the collective wisdom of our 165,000-member-strong community help you make better investing decisions. It's free.

For related Foolishness:

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Altria and has a disclosure policy.


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