There is no easy way to select individual stocks. Measures of financial quality can highlight companies that are worth a closer look, but a decision to commit money must also take into consideration both recent developments and a look ahead.
Note that the carrying value of a company’s stock may be much lower than its current market capitalization. The company may have issued most of its shares many years ago at a price much lower than today’s. If a company has issued a relatively large amount of newer shares recently, or at high prices, its ROIC will be lower. If a company has low debt, its ROIC is higher. If a company is being forced to increase borrowings, especially as interest rates are rising, its ROIC will go down.
Stock screen For the S&P 500, quarterly ROIC data going back three years is available from FactSet for 492 companies. Companies’ fiscal quarters don’t necessarily match the calendar, and when a company announces its quarterly results with a press release, it may not disclose enough data for FactSet to immediately calculate its ROIC for that quarter. The ROIC for that quarter will become available when the company files its quarterly 10-Q report with the Securities and Exchange Commission.
Among this list of 20 companies with the highest ROIC over the past three years, only nine have beaten the index’s three-year total return through Oct. 24. However, the longer the period, the better the high-ROIC group looks. Among the 20 companies, 19 have been around for 10 years, and 17 of those have beaten the index’s return.
During an interview with MarketWatch, Brad Klapmeyer, who co-manages the fund, said shares of Verisign had been “under pressure” because of a slowdown in demand for domain registration, following spike during the pandemic. He said that the “churning-out” of domain names following that increase was a “normal part of the cycle.”
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