5 Stocks With High ROE to Buy in a Roller Coaster Market

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U.S. equity markets ended their four-day losing streak aided by better-than-expected corporate earnings and broad-based growth across sectors. The solid start to the week restored the growth momentum that was apparently paused by a market correction triggered by credit rating agency Fitch trimming the long-term foreign currency issuer default rating for the United States to AA+ from AAA. The downgrade was made citing “expected fiscal deterioration over the next three years.”Despite signs of a resilient economy with the personal consumption expenditures price index rising 2.6% in the second quarter, moderating inflation with the Federal Reserve hiking interest rates by a quarter percentage point, and solid corporate earnings, markets appeared to be under “constructive rotation.” However, investors have broadly taken the decline in stride as fundamental views about the economy, in general, remain relatively strong.The focus has now shifted to the Fed’s Sep 19-20 policy meeting. This will likely be another market catalyst, with investors looking for cues about the broader economy and the trajectory of future interest rate hikes.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. AutoNation, Inc. AN, Suzano S.A. SUZ, KLA Corporation KLAC, Nexstar Media Group, Inc. NXST and América Móvil, S.A.B. de C.V. AMX are some of the stocks with high ROE to profit from.ROE: A Key MetricROE = Net Income/Shareholders’ EquityROE 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 retu...

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