5 Profitable Stocks with Strong Returns to Buy Now

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One of the best tools to measure the prospects of stocks is profitability analysis. Profitability analysis is used to compare the total revenue generated and total expenses borne by a company. A company with a high sales surplus has the chance to generate ample profit after meeting its costs and expenses. This is why investing in the shares of a company with high profitability might be a prudent option as it generally ensures satisfactory returns.

However, a favorable profitability position may not ensure strong returns if fundamentals are weak.

So, the simplest and most transparent way of checking a company's profitability is by using profitability ratios. Although there are a variety of profitability ratios, we have selected net income ratio here as it is the most useful and, at the same time, the simplest profitability metric.

Net Income Ratio

There are a variety of profit ratios like gross income ratio, operating income ratio, pretax profit margin and net income ratio, which can be used to find out a company's profit generating abilities. But net income ratio is widely accepted as the most conservative of the above mentioned ratios.

Net income in simple words is the total earnings a company makes after deducting all the expenses from its sales revenue. Net income ratio or net profit margin is a ratio of a company's net income and sales revenue. A high net income ratio shows that the company is able to effectively manage all its business activities, including production, administration, selling, etc.

Screening Parameters

Net income ratio is one of our key screening parameters. However, to find out the sure winners, we have added a few additional criteria to arrive at an efficient strategy.

Zacks Rank equal to #1: Only Strong Buy stocks are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.

% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.

12-Month Trailing Net Income Ratio Higher than X Industry: High net income ratio indicates a company's solid profitability.

12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that possess higher sales and net income growth in the last 12 months showcase better financial performance.

Here are 5 of the 13 stocks that qualified the screening:

QVC Group ( QVCA )

Daqo New Energy Corp. ( DQ )

Facebook, Inc. ( FB )

Braskem S.A. ( BAK )

B2Gold Corp. ( BTG )

While backtesting over a two-year timeframe (May 16, 2014 to May 20, 2016), a portfolio following this strategy provided a total return of 18.3% compared with the S&P 500's return of 7.3%. Thus, this strategy may prove profitable for those looking to beat the markets.

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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:

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LIBERTY M INT-A (QVCA): Free Stock Analysis Report

DAQO NEW ENERGY (DQ): Free Stock Analysis Report

BRASKEM SA (BAK): Free Stock Analysis Report

FACEBOOK INC-A (FB): Free Stock Analysis Report

B2GOLD CORP (BTG): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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