Buying Top-Ranked Stocks Efficiently Generating Profits Amid the Selloff

Stocks popped in morning trading on Tuesday as Wall Street cheered the possibility that the Trump administration might quickly enter tariff negotiations with China.

The deluge of headlines and tariff updates is likely to create more volatility and possibly more selling in the short term. It is also feasible that the Trump administration’s attempt to tweak the current economic system could lead to market turmoil for months.

That said, no one can call a bottom in real time, and the stock market selloff—which was due—has already cooled things off substantially.

The Nasdaq tanked 23% from its highs, dipping below its 2021 peaks and testing its long-term 200-week moving average on Monday.

There could be more near-term selling amid the tariff unknowns. But the technical levels might encourage buyers, big and small, to start dipping their toes into stocks again.

A good starting point for investors looking to buy stocks after the huge and rapid market fall is to search for stocks that boast improving earnings outlooks to earn a Zacks Rank #1 (Strong Buy) and are also efficiently generating profits.

Return on Equity 101

Return on Equity or ROE helps investors understand if a firm’s executives are creating assets with investors’ cash or burning it. ROE shows a company’s ability to turn assets into profits. Put another way, this vital metric measures the profits made for each dollar of shareholder equity.

ROE is calculated as net income / shareholder's equity. For example: if $0.10 of assets are created for each $1 of shareholder equity that would equal a ROE of 10%.

Overall, Return on Equity is a great item to use regardless of what type of investor you are since it provides insight into management’s ability to create value and keep costs under control. Plus, if ROE slips, it can alert us to potential problems.

With all that said, let’s take a look at this screen’s parameters and see the companies proving they can return value to shareholders instead of churning through their cash…

• Zacks Rank equal to 1

The Zacks Rank looks at upward earnings estimate revisions, among other metrics, in order to find companies that are projected to see their earnings get stronger. In fact, beginning with a Zacks Rank #1 can be a great starting point because it boasts an average annual return of over 25% per year during the last 30 years.

• Price greater than or equal to 5

Today we ruled out any stocks that are trading for less than $5 a share because they can be more volatile and speculative.

• Price/Sales Ratio less than or equal to 1

On top of that, we are looking for a low price to sales ratio. Today we went with 1 or below as this range is usually thought to provide better value since investors pay less for each unit of sales.

• % (Broker) Rating Strong Buy equal to 100 (%)

In this screen, we decided to go with companies that brokers are fully on board with since ratings are typically skewed strongly toward ‘buy’ and ‘strong buy.’

• ROE greater than or equal to 10%

Lastly, but most importantly for today’s screen, we got rid of any companies with Return on Equity of less than 10 because the median ROE value for all of the stocks in the Zacks Universe is under 10.

Here is one of the five stocks that made it through today’s screen…

Buy this Market-Crushing Tech Stock Amid the Stock Market Downturn

Climb Global Solutions, Inc. CLMB is a value-added global IT distribution and solutions company specializing in emerging and innovative technologies, particularly in cloud-based and data center software. Simply put, CLMB helps sell special computer software and hardware. Climb Global works with smaller tech companies to get their products to customers and also helps bigger companies transition to cloud-based solutions.

CLMB averaged 18% revenue expansion in the past five years, including 32% growth in 2024. The firm is expected to follow this impressive stretch with roughly 7% average expansion in the next two years.

The tech company posted 64% adjusted earnings growth last year, and its upbeat outlook sent its FY25 consensus estimate 19% higher since its early March earnings release. “We will also continue to evaluate M&A opportunities that can enhance our service and solutions offerings, as well as expand our geographic footprint in the U.S. and overseas,” CEO Dale Foster said in a statement.

CLMB’s Return on Equity of 28.54% blows away its industry’s average and crushes the 10% median ROE for all the stocks in the Zacks Universe. The company pays a dividend. Plus, CLMB shares have ripped 620% higher in the last five years to blow away Tech’s 100%.  

Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. 

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: www.zacks.com/performance_disclosure

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