The market continues to be very volatile and trending down. When the seas are this turbulent you want to be on the biggest ships and thus I continue my review of the super cap stocks. This time, I'm going to examine return-on-equity (ROE) and return on-invested-capital (ROIC).
I started with the 12 highest valued companies but remained with 10 after running them through several screens. Among those 10 super, caps the company that is producing the highest returns is Microsoft (MSFT).
Most of the large enterprises are returning double digit rewards to their shareholders. However, there are some laggards, especially among financial companies, including General Electric (GE). GE receives its largest returns from its GE Capital division.
Highest ROE to lowest
- Microsoft (MSFT) 44.02%
- Johnson & Johnson (JNJ) 26.31%
- China Mobile Limited (CHL) 24.28%
- Walmart (WMT) 20.99%
- Exxon Mobil (XOM) 16.99%
- Procter & Gamble (PG) 16.63%
- PetroChina (PTR) 12.49%
- Wells Fargo (WFC) 9.81%
- General Electric (GE) 9.35%
- Bank of America (BAC) -1.16%
For almost its entire existence, Microsoft has produced staggering returns. That continues even though the stock appreciation has slowed. Given the many poor economic conditions that have appeared recently, this might be just fine in a world where not losing is paramount. Johnson & Johnson follows suit with high returns and slow growth. The two companies also share another strong attribute, Triple-A credit ratings and low debt.
Highest ROIC to lowest
- Microsoft (MSFT) 35.71%
- China Mobile Limited (CHL) 22.83%
- Johnson & Johnson (JNJ) 20.90%
- Exxon Mobil (XOM) 15.59%
- Procter & Gamble (PG) 13.85%
- Walmart (WMT) 13.98%
- PetroChina (PTR) 10.13%
- General Electric (GE) 3.54%
- Wells Fargo (WFC) 3.88%
- Bank of America (BAC) 1.80%
China Mobile is in the top three on both lists and is growing at a higher rate than Microsoft and Johnson & Johnson.
The stocks apparently have fallen into three groups, only slightly altering their order. The top group is represented by MSFT, JNJ and CHL; the second group is represented by XOM, PG, WMT and PTR; and finally the laggards are BAC, WFC and GE.
The returns of the stocks with financial components clearly do not make the grade on a trailing basis. I have long positions in all three, but this exercise is about finding tranquility in a stormy sea. For this reason, Bank of America, Wells Fargo and GE are getting cut here. They have value, but are too volatile.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: At the time of this post he owned shares of GE, JNJ, PTR, WFC, and options in BAC.
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Reader Comments (Page 1 of 1)
5-24-2010 @ 9:49PM
william lindblad said...
I am willing to be to bet that you will prove reasonably correct, however given today's circumstances I can also say that the situation is completely over my head. The amount of information, conflicting and otherwise, is massive. On a strictly economic front the debt burdens indicate higher taxes ahead. There is also talk of inflationary spirals which I really doubt, at least near term. Housing seems to be picking up. I said seems. This is a game of who do you trust and the markets are certainly reflecting my sentiments.
I agree with all that think that the road ahead will be a rocky one.
I don't see any abyss. Cherry picking, as long as one can find the cherries, is worthwhile.