The stock market ripped higher through morning trading Tuesday as the bulls turned up the heat ahead of the CPI release on Wednesday. Wall Street buyers dug their heels in at the Nasdaq’s 200-day (near the tech-heavy index’s 2021 highs) because big tech had already tumbled.

The bulls are trying to take the tech-heavy index back above its 21-day and then its 50-day. Of course, the market could experience volatility and more selling in the coming days since July inflation projections are nothing to celebrate.

But it’s difficult to imagine the Fed and Jay Powell deviating from their course. The bulls also know that the overall earnings outlook for large-cap tech stocks remains robust.

Therefore, investors likely want to remain exposed to stocks in the back half of 2024. A solid place to start looking for great stocks to buy in August and beyond is to find Zacks Rank #1 (Strong Buy) stocks—improving earnings outlooks—that are also efficiently generating profits.

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Return on Equity 101

Return on Equity or ROE helps investors understand if a firm’s executives are creating assets with investors’ cash or burning it. ROE shows a company’s ability to turn assets into profits. Put another way, this vital metric measures the profits made for each dollar of shareholder equity.

ROE is calculated as net income / shareholder's equity. For example: if $0.10 of assets are created for each $1 of shareholder equity that would equal a ROE of 10%.

Overall, Return on Equity is a great item to use regardless of what type of investor you are since it provides insight into management’s ability to create value and keep costs under control. Plus, if ROE slips, it can alert us to potential problems.

With all that said, let’s take a look at this screen’s parameters and see the companies proving they can return value to shareholders instead of churning through their cash…

• Zacks Rank equal to 1

The Zacks Rank looks at upward earnings estimate revisions, among other metrics, in order to find companies that are projected to see their earnings get stronger. In fact, beginning with a Zacks Rank #1 can be a great starting point because it boasts an average annual return of over 25% per year during the last 30 years.

• Price greater than or equal to 5

Today we ruled out any stocks that are trading for less than $5 a share because they can be more volatile and speculative.

• Price/Sales Ratio less than or equal to 1

On top of that, we are looking for a low price to sales ratio. Today we went with 1 or below as this range is usually thought to provide better value since investors pay less for each unit of sales.

• % (Broker) Rating Strong Buy equal to 100 (%)

In this screen, we decided to go with companies that brokers are fully on board with since ratings are typically skewed strongly toward ‘buy’ and ‘strong buy.’

• ROE greater than or equal to 10%

Lastly, but most importantly for today’s screen, we got rid of any companies with Return on Equity of less than 10 because the median ROE value for all of the stocks in the Zacks Universe is under 10.

Here is one of the eight stocks that made it through today’s screen…

Willdan Group, Inc. (WLDN) Stock

Willdan Group operates in a sweet spot across various megatrends. Willdan’s pitch to clients and investors is that it “transitions communities to clean energy and a sustainable future.” Willdan provides professional, technical, and consulting services to utilities, government agencies, and private industry. Willdan’s offerings span from electric grid solutions and energy efficiency to sustainability, engineering, and beyond.

Willdan posted a blowout beat-and-raise quarter on August 1. Wildan landed a few key contracts during the period, including working with Facebook parent Meta to “study emissions related to voluntary clean energy procurement.”

Image Source: Zacks Investment Research

Willdan is projected to grow its adjusted EPS by 13% in 2024 and post 10% stronger EPS next year on the back of 7.5% and 3.3%, respective revenue growth. Willdan’s consensus earnings estimates for FY24 and FY25 surged since its release, with its most accurate/most recent estimates coming in solidly above consensus to help WLDN land its Zacks Rank #1 (Strong Buy).  

WLDN shares have climbed 1,100% during the past 15 years and 55% in the trailing 12 months. Despite the surge off its 2022 lows, Willdan trades around 33% below its 2021 peaks. Willdan is trading near its 10-year median at 20.3X forward 12-month earnings. On top of that, Willdan’s Return on Equity (ROE) matches its highly-ranked industry at 12.1%.

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