October may be historically a volatile month for the stock market, but investors shouldn’t shy away from investing. Instead, they should look for companies that deliver strong returns after covering all operating and non-operating expenses. As a result, investors generally prefer profitable businesses over companies that consistently incur losses. To evaluate a company’s profitability, investors commonly use profitability ratios to measure its ability to generate consistent, sustainable earnings.
On that note, Micron Technology, Inc. MU, NVIDIA Corporation NVDA and Par Pacific Holdings, Inc. PARR stand out as the most profitable stocks, supported by strong net income ratios and upside potential.
Why the Net Income Ratio Is Important to Investors
The net income ratio is a key indicator of a company’s overall profitability. It shows the percentage of net income relative to total sales revenues. The net income ratio helps assess a firm’s ability to cover operating and non-operating expenses with revenues. A higher net income ratio usually indicates a company’s ability to generate sufficient revenue and manage all business functions effectively.
Stock Screening Criteria Applied in the Research Wizard
The net income ratio is not the only indicator of future winners. So, we have added a few more criteria to arrive at a winning strategy.
Zacks Rank equal to #1: Whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Trailing 12-Month Sales and Net Income Growth Higher than X Industry: Stocks that have witnessed higher-than-industry sales and net income growth in the past 12 months are positioned to perform well.
Trailing 12-Month Net Income Ratio Higher than X Industry: A high net income ratio indicates a company’s solid profitability.
Percentage Rating Strong Buy greater than 70: This indicates that 70% of the current broker recommendations for the stock are Strong Buy.
These few parameters have narrowed the universe of more than 7,685 stocks to only 14.
Here are three of the 14 stocks that qualified for the screening:
Micron Technology
Micron Technology is a global provider of memory and storage products. MU's 12-month net profit margin is 63.8%. Micron's expected earnings growth rate for the current year is 133.9%.
NVIDIA
NVIDIA is a leading AI infrastructure company operating across global markets. NVDA’s 12-month net profit margin is 63.7%. Its expected earnings growth rate for the current year is 93.9%.
Par Pacific Holdings
Par Pacific Holdings, an energy company, supplies both renewable and conventional fuels across the United States. PARR’s 12-month net profit margin is 9.9%. Its expected earnings growth rate for the current year is 214%.
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Micron Technology, Inc. (MU): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).