June trading kicked off on an upbeat note despite the ongoing geopolitical tensions and inflationary pressure, with major stock indexes touching record highs in the first trading session of the month. The positive momentum should encourage astute investors to place their bets on stocks that offer strong upside potential.
In doing so, investors should focus on companies that deliver strong returns after covering both operating and non-operating expenses. Consequently, businesses with consistent profits tend to be more attractive than loss-making firms.
To assess profitability, investors often rely on accounting ratios that measure a company’s bottom-line performance. On that note, Micron Technology, Inc. MU, Credo Technology Group Holding Ltd CRDO and Teradyne, Inc. TER stand out as the top profitable picks, supported by strong net income ratios and considerable upside potential.
Net Income Ratio Explained in Simple Terms
The net income ratio indicates a company's profitability. It reflects the percentage of net income to total sales revenues. 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.
Using Research Wizard to Find Winning Stocks
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 19.
Here are three of the 19 stocks that qualified for the screening:
Micron Technology
Micron Technology is a provider of memory and storage products globally. The 12-month net profit margin of MU is 41.5%. The company’s expected earnings growth rate for the current year is 619.8% (read more: 2 AI Memory Stocks Outperforming NVIDIA With Big Upside Ahead).
Credo Technology
Credo Technology offers high-speed connectivity solutions for Ethernet and PCIe applications worldwide. The 12-month net profit margin of CRDO is 31.8%. The company’s expected earnings growth rate for the current year is 371.4%.
Teradyne
Teradyne develops automated test systems and robotics solutions for global markets. The 12-month net profit margin of TER is 22.6%. The company’s expected earnings growth rate for the current year is 79%.
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Micron Technology, Inc. (MU): Free Stock Analysis Report
Teradyne, Inc. (TER): Free Stock Analysis Report
Credo Technology Group Holding Ltd. (CRDO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).