Civitas and Mueller Can Boast High Profit, Low Debt

Stocks that can meet both criteria are rare

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Jun 19, 2023
  • Each stock has a return on stockholders’ equity of 20% or better.
  • Each also has debt less than 10% of equity.
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Two of the badges of corporate success are high profits and low debt.

Today I draw your attention to five stocks that excel in both regards. Each has a return on stockholders’ equity of 20% or better. On this measure of profitability, I consider 10% decent and 15% good.

Each also has debt less than 10% of equity. On this measure, I consider under 100% decent and under 50% good.

Stocks that can meet both criteria are rare birds.


Civitas Resources Inc. (CIVI, Financial), based in Denver, Colorado, explores for and produces oil and gas in the Rocky Mountain region. Although it’s a mid-sized company, only four Wall Street analysts cover it. Three rate it a “buy.”

It’s a relatively new company, formed by the 2021 merger between Bonanza Creek Energy Inc. and Extraction Oil & Gas Inc.

The price of oil hit $120 last summer, but has declined into the $70 to $75 range. Fears of a recession are a big reason.

It’s difficult to say whether we will have a recession or not in the next 12 months. But even if we do, I think the stock is attractive at $69, which is only 8 times the earnings analysts expect for this year.

Mueller Industries

From Collierville, Tennessee comes Mueller Industries Inc. (MLI, Financial), a consistently profitable company that makes metal and plastic products such as rods, pipes, values, heat exchangers and refrigerator coils. Copper products are its specialty.

Mueller has shown a profit for at least 30 years in a row, which as far back as my database extends. Last year its return on equity was 40%.

Although Mueller’s stock price has climbed more than 50% in the past year, it still seems attractive to me at $81, which is 12 times estimated earnings for this year.


Diodes Inc. (DIOD, Financial), out of Plano, Texas, makes diodes (devices that make electric current flow in one direction), rectifiers, transistors, switches and other electronic products. It has been profitable in 14 of the past 15 years, and climbed above the 20% return on equity line in the past two years.

Wall Street doesn’t like this stock. Of five analysts who cover it, four rate it a “hold,” which is faint praise and sometimes a euphemism for “sell.”

I like it, however. In the past decade, the stock has commanded an average price-earnings multiple of 29, but it currently sells for only 13 times earnings. Barrow, Hanley, Mewhinney & Strauss, a Texas investment manager I respect, owns more than half a million shares.


Want a stock that will give you a wild ride, for better and for worse? Try Cal-Maine Foods Inc. (CALM, Financial), the largest U.S. egg producer.

The company, based in Ridgeland, Mississippi, operates more than three dozen chicken farms in 15 states, mostly in the South. It also runs hatcheries, processing plants, feed mills and related facilities.

The company’s profits vary widely from year to year with the prices of eggs and corn (chicken feed). For Cal-Maine, things go best when egg prices wax and corn prices wane.

Unlike most companies, Cal-Maine isn’t shy about raising its dividend in good times and cutting it in bad times. Right now, the dividend yield is 10.8%.


I’ve recommended Moderna (MRNA, Financial) stock before, and been wrong (or at least early, which in the stock market is almost the same). Analysts paint a bleak picture. They expect the company, which posted big profits in 2021 and 2022 fueled by its Covid vaccine, to return to red in in 2023 through 2025.

I’m impressed by management, and think an upside surprise is possible. I think the company’s messenger RNA technology may be applicable to additional diseases beside Covid.

Past record

I’ve written 18 previous columns advocating stocks with high profit and low debt. The average one-year return has been 11.2%, comparing well with 9.8% for the Standard & Poor’s 500 Total Return Index over the same periods.

Twelve of the 18 columns were profitable and 10 beat the S&P.

Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.

My suggestions from a year ago returned 18.7%, led by a 62% gain in Mueller Industries. Teradyne Inc. (TER, Financial) also did well, up 25%. My worst pick was Sanderson Farms Inc. (SAFM, Financial), which was taken private at a price 2% below the price at which I recommended it. The S&P was up 22.1%.

John Dorfman is chairman of Dorfman Value Investments in Newton Upper Falls, Massachusetts. His firm or clients may own or trade the stocks discussed here. He can be reached at [email protected].

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I am/we currently own positions in the stocks mentioned, and have NO plans to sell some or all of the positions in the stocks mentioned over the next 72 hours. Click for the complete disclosure