Buy 5 Stocks With High ROE as Markets Dance Whimsically to the AI Tune

The broader equity markets witnessed a roller-coaster ride this week as concerns regarding AI disruption across the spectrum and geopolitical unrest triggered a downslide. As simmering tensions between the United States and Iran kept the markets on edge, the downtrend was amplified by increasing skepticism about how AI will impact the broader economy. Sticky inflation and a weaker-than-expected 1.4% GDP growth compared to broad-based expectations of a 2.5% gain further spooked the markets.

However, markets rebounded from the free fall with the annulment of President Trump’s signature tariffs and the hype centered around NVIDIA’s fourth-quarter fiscal 2026 earnings release. As the Supreme Court struck down most of Trump’s sweeping tariffs, citing that the President lacked the power to impose such tariffs, markets moved northward. The uptrend, however, fizzled despite a healthy earnings and revenue beat by NVIDIA as investors worried about its deal with OpenAI and its ambitious capital expenditure outlays. 

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, such as return on equity (ROE). A high ROE ensures that the company is reinvesting cash at a high rate of return. Ross Stores, Inc. ROST, Globe Life Inc. GL, Banco Bilbao Vizcaya Argentaria, S.A. BBVA, Zoetis Inc. ZTS and TE Connectivity plc TEL are some of the stocks with high ROE to profit from.

Why ROE?

ROE = Net Income/Shareholders’ Equity

ROE 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 returns.

Parameters Used for Screening

In order to shortlist stocks that are cash-rich with high ROE, we have added Cash Flow greater than $1 billion and ROE greater than X-Industry as our primary screening parameters. In addition, we have taken a few other criteria into consideration to arrive at a winning strategy.

Price/Cash Flow lesser than X-Industry: This metric measures how much investors pay for $1 of free cash flow. A lower ratio indicates that investors need to pay less for a better cash flow-generating stock.

Return on Assets (ROA) greater than X-Industry: This metric determines how much profit a company earns for every dollar of assets, which includes cash, accounts receivable, property, equipment, inventory and furniture. The higher the ROA, the better it is for the company.

5-Year EPS Historical Growth greater than X-Industry: This criterion indicates that continued earnings momentum has translated into solid cash strength.   

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.

Here are five of the 14 stocks that qualified the screening:

Ross: Based in Dublin, CA, Ross operates as an off-price retailer of apparel and home accessories, primarily in the United States. The company primarily offers in-season, branded, and designer apparel, footwear, accessories and other home-related merchandise for everyone in the family. This format primarily targets middle-income households. Prices offered at Ross are generally 20% to 60% below the regular prices of most department and specialty stores. 

The company has a long-term earnings growth expectation of 8.1% and delivered a trailing four-quarter earnings surprise of 6.7%, on average. Ross carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. 

Globe Life: Based in McKinney, TX, Globe Life is a holding company for a group of insurance companies that primarily market individual life and supplemental health insurance to lower-middle to middle-income households throughout the United States. Globe Life's insurance subsidiaries write a variety of nonparticipating ordinary life insurance products, which include traditional whole life, term life and other life insurance. 

It also offers Medicare Supplement and limited-benefit supplemental health insurance products that include primarily critical illness and accident plans. Globe Life carries a Zacks Rank #2. 

Banco Bilbao: Headquartered in Bilbao, Spain, Banco Bilbao provides retail banking, wholesale banking and asset management services, primarily in Spain, Mexico, Turkey, the Rest of Europe, South America, the United States and Asia.

The company has a long-term earnings growth expectation of 17.1%. It delivered a trailing four-quarter earnings surprise of 3.2%, on average. Banco Bilbao sports a Zacks Rank #1. It has a VGM Score of B.  

Zoetis: Parsippany, NJ-based Zoetis came into existence following Pfizer’s decision to spin off its animal health business. The company is a leader in the animal health space, focusing on livestock and companion animals in seven major product categories: parasiticides, vaccines, dermatology, anti-infectives, pain and sedation, other pharmaceutical and animal health diagnostics. Zoetis has a diversified business, which caters to eight core species — cattle, swine, poultry, fish and sheep (collectively, livestock) and dogs, cats and horses (collectively, companion animals).

The company has a long-term earnings growth expectation of 9.3%. It delivered a trailing four-quarter earnings surprise of 6.2%, on average. Zoetis carries a Zacks Rank #2. 

TE Connectivity: Based in Galway, Ireland, TE Connectivity is a global technology company that designs and manufactures connectivity and sensor solutions for a wide range of industries, including automotive, aerospace, defense, energy and medical. With operations in more than 130 countries, TE Connectivity focuses on emerging technologies such as 5G, electric vehicles, industrial automation and smart cities to position itself at the forefront of connectivity advancements. 

The company has a long-term earnings growth expectation of 12%. It delivered a trailing four-quarter earnings surprise of 7.5%, on average. It has a VGM Score of B. TE Connectivity sports a Zacks Rank #1. 

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This article originally published on Zacks Investment Research (zacks.com).

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