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 Philip Morris
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. Their high ratings make them 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
|
---|---|---|---|
3M |
26.6% |
$58.1 |
**** |
Accenture |
52.1% |
$24.4 |
**** |
AmeriGas Partners |
33.2% |
$2.3 |
**** |
Coca-Cola |
28.6% |
$118.2 |
**** |
Philip Morris |
121.9% |
$82.8 |
***** |
Unilever |
30.3% |
$75.1 |
**** |
Verizon Communications |
26.7% |
$78.0 |
**** |
Data from Motley Fool CAPS. TTM = trailing 12 months.
While the stock screener is a great tool, it should only be 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.
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