July trading has begun on a mixed note, but it has traditionally been one of the strongest months for U.S. equities. This seasonal strength presents an opportunity for astute investors to consider stocks that offer strong upside potential.
When identifying such opportunities, investors should focus on companies that consistently generate profits after accounting for both operating and non-operating expenses. Consequently, businesses with a proven track record of consistent profitability tend to be more attractive than those operating at a loss.
To evaluate profitability, investors often turn to accounting ratios that measure a company’s bottom-line performance. On that note, Micron Technology, Inc. MU, Credo Technology Group Holding Ltd CRDO and TD SYNNEX Corporation SNX stand out as the top profitable picks, backed by strong net income ratios and meaningful upside potential.
Understanding the Net Income Ratio in Simple Terms
The net income ratio indicates a company's profitability. It reflects the percentage of net income relative to total sales revenue. Using the net income ratio, one can determine a firm’s effectiveness at covering operating and non-operating expenses with revenues. A higher net income ratio usually implies a company’s ability to generate sufficient revenues and manage all business functions effectively.
Finding Winning Stocks With 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 55.9%. The company’s expected earnings growth rate for the current year is 791% (read more: Missed NVIDIA's 900% Run? Micron Could Be AI's Next Big Winner).
Credo Technology
Credo Technology offers high-speed connectivity solutions for Ethernet and PCIe applications worldwide. The 12-month net profit margin of CRDO is 35.4%. The company’s expected earnings growth rate for the current year is 72.8%.
TD SYNNEX
TD SYNNEX is a leading global IT distributor and solutions aggregator. SNX’s 12-month net profit margin is 1.6%. The company’s expected earnings growth rate for the current year is 43.1%.
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Micron Technology, Inc. (MU): Free Stock Analysis Report
TD SYNNEX Corporation (SNX): Free Stock Analysis Report
Credo Technology Group Holding Ltd. (CRDO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).