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James Li
James Li
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4 High-Quality Stocks With Strong Returns on Equity

New Historical Data Screen identifies stocks with high returns over the past 5 years

According to the Historical Data Screen, a new screening capability for GuruFocus Premium Plus members, four high-quality stocks that had strong returns on equity over the past five years and low Greenblatt earnings yields are Apple Inc. (NASDAQ:AAPL), Copart Inc. (NASDAQ:CPRT), Exponent Inc. (NASDAQ:EXPO) and Masimo Corp. (NASDAQ:MASI).

Historical Data Screen feature helps finding good stocks

GuruFocus' High-Quality Screen selects stocks with high financial strength, profitability and business predictability. One characteristic of high-quality stocks is a 10-year median return on equity of at least 15%.

The Historical Data Screen feature allows us to take a further step: screen for stocks that had a return on equity of at least 15% each year over the past 10 years. Figure 1 illustrates an example stock, Apple Inc. (NASDAQ:AAPL).

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Figure 1

In the ROE section of the Screener's Fundamental tab, click on the "+" button next to the "Value" row to open the Historical Data Screen pop-up menu for the return on equity. Figure 2 illustrates this.

Figure 2

To screen for stocks where the return on equity is greater than 15% each year over the past 10 years, enter "2010" in the "From" cell, set the screener type to "Greater than (value)" and then enter 15 in the "Value" box. Figure 3 illustrates this.

Figure 3

GuruFocus ranks Apple's profitability 10 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank, a high Piotroski F-score of 7 and a return on equity that outperforms 99.55% of global competitors.

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Apple's Greenblatt earnings yield of 3.6% is near a 10-year low, yet outperforms approximately 54% of global competitors. Despite this, our research has shown that the Greenblatt earnings yield has a strong negative correlation with 12-month stock returns, i.e., stocks with low Greenblatt earnings yields tend to have higher returns.

Gurus with large holdings in Apple include Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) and Ken Fisher (Trades, Portfolio)'s Fisher Investments.

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According to the screener, three other high-quality, high return-on-equity stocks have a Greenblatt earnings yield below 4%.

Copart

Dallas-based Copart provides online auctions and vehicle remarketing services targeted primarily at insurance companies, car dealerships, fleet operators and vehicle rental companies. GuruFocus ranks the company's profitability 10 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a 4.5-star business predictability rank, a return on equity that outperforms 94.31% of global competitors and an operating margin that has increased approximately 3.8% per year on average over the past five years.

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Exponent

Exponent provides engineering and scientific consulting services on a project-to-project basis. GuruFocus ranks the Menlo Park, California-based company's profitability 9 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank, a return on equity that outperforms approximately 90% of global competitors and an operating margin that has increased approximately 0.60% per year on average over the past five years.

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Masimo

Masimo produces medical devices for noninvasive patient monitoring. GuruFocus ranks the company's profitability 9 out of 10 on several positive investing signs, which include a 3.5-star business predictability rank, a return on equity that outperforms 87.24% of global competitors and an operating margin that has increased approximately 9.7% per year on average over the past five years.

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Disclosure: The author is long Apple. A previous article incorrectly stated that Greenblatt earnings yield has a strong positive correlation with stock returns. Regardless, the correlation research only gives a rough understanding of how the filters were correlated with stock returns over a specific period. Past performance does not indicate future performance and thus should be used with caution.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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