Published on March 15th, 2022 by Bob Ciura
Spreadsheet data updated daily; Top 10 list is updated when the article is updated
Return on invested capital, or ROIC, is a valuable financial ratio that investors can add to their research process.
Understanding ROIC and using it to screen for high ROIC stocks is a good way to focus on the highest-quality businesses.
With this in mind, we ran a stock screen to focus on the highest ROIC stocks in the S&P 500.
You can download a free copy of the top 100 stocks with the highest ROIC (along with important financial metrics like dividend yields and price-to-earnings ratio) by clicking on the link below:
Click here to download my High ROIC Stocks Excel Spreadsheet now. Keep reading this article to learn more.
Using ROIC allows investors to filter out the highest-quality businesses that are effectively generating a return on capital.
This article will explain ROIC and its usefulness for investors. It will also list the top 10 highest ROIC stocks right now.
Table Of Contents
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Introduction & Spreadsheet Download What Is ROIC? The Top 10 Highest ROIC Stocks Final ThoughtsWhat Is ROIC?
Put simply, return on invested capital (ROIC) is a financial ratio that shows a company’s ability to allocate capital. The common formula to calculate ROIC is to divide a company’s after-tax net operating profit, by the sum of its debt and equity capital.
Once the ROIC is calculated, it is evaluated against a company’s weighted average cost of capital, commonly referred to as WACC. If a company’s WACC is not immediately available, it can be calculated by taking a weighted average of the cost of a company’s debt and equity.
Cost of debt is calculated by averaging the yield to maturity for a company’s outstanding debt. This is fairly easy to find, as a publicly-traded company must report its debt obligations.
Cost of equity is typically calculated by using the capital asset pricing model, otherwise known as CAPM.
Once the WACC is calculated, it can be compared with the ROIC. Investors want to see a company’s ROIC exceed its WACC. This indicates the underlying business is successfully investing its capital to generate a profitable return. In this way, the company is creating economic value.
Generally, stocks generating the highest ROIC are doing the best job of allocating their investors’ capital. With this in mind, the following section ranks the 10 stocks with the highest ROIC.
The Top 10 Highest ROIC Stocks
The following 10 stocks have the highest ROIC. Stocks are listed in order from lowest to highest.
High ROIC Stock #10: Apple, Inc. (AAPL)
Apple revolutionized personal technology with the introduction of the Macintosh in 1984. Today the technology company designs, manufactures and sells products such as iPhones, iPads, Mac, Apple Watch and Apple TV. Apple also has a services business that sells music, apps, and subscriptions.
On January 27th, 2022, Apple reported Q1 fiscal year 2022 results for the period ending December 25th, 2021. For the quarter Apple generated revenue of $123.9 billion, an 11.2% increase compared to Q1 2021. Product sales were up 9.1%, led by a 9.2% increase in iPhones (58% of total sales).
Service sales increased 23.8% to $19.5 billion and made up 16% of all sales in the quarter. Net income equaled $34.63 billion or $2.10 per share compared to $28.76 billion or $1.68 per share in Q1 2021.
Click here to download our most recent Sure Analysis report on AAPL (preview of page 1 of 3 shown below):
High ROIC Stock #9: Yum! Brands (YUM)
Yum Brands is a fast food stock. It owns the KFC, Pizza Hut, Taco Bell and The Habit Restaurants chains. It is present in more than 155 countries and has more than 53,000 restaurants, 60% of which are located abroad. KFC generates about half of the total revenue and operating profit of the company.
In early February, Yum Brands reported (2/10/22) financial results for the fourth quarter of 2021. The company grew its sales 9% over the prior year’s quarter thanks to 5% same-store sales growth and 4% growth in store count.
However, it was hurt by higher general and administrative expenses and company restaurant expenses. As a result, its adjusted EPS declined by 12%, from $1.16 to $1.02.
Click here to download our most recent Sure Analysis report on YUM (preview of page 1 of 3 shown below):
High ROIC Stock #8: O’Reilly Automotive (ORLY)
O’Reilly Automotive was founded in 1957 by the O’Reilly family and is now one of the largest specialty retailers of automotive parts and accessories in the U.S., serving both the do–it–yourself and professional service provider markets. The company operates more than 5,400 stores in 47 states and about 21 stores in Mexico.
Click here to download our most recent Sure Analysis report on ORLY (preview of page 1 of 3 shown below):
High ROIC Stock #7: Starbucks Corp. (SBUX)
Starbucks has more than 34,000 stores worldwide. The company operates under the namesake Starbucks brand, but also holds the Seattle’s Best Coffee, Teavana, Evolution Fresh, and Ethos Water brands in its portfolio. The company generated $29 billion in annual revenue last year.
On February 1st, 2022, Starbucks reported Q1 fiscal year 2022 results for the period ending January 2nd, 2022. (Starbucks fiscal year ends the Sunday closest to September 30th.) For the quarter, the company generated net revenue of $8.05 billion, a 19.3% increase compared to Q1 2021, driven by a 13% increase in comparable store sales.
Adjusted EPS equaled $0.72 compared to $0.61 in the year ago quarter. During the quarter Starbucks opened 484 net new stores, bringing the total to 34,317 stories globally, of which 51% and 49% were company operated and licensed, respectively. There are now 15,500 stores in the U.S. and over 5,500 stores in China.
Click here to download our most recent Sure Analysis report on SBUX (preview of page 1 of 3 shown below):
High ROIC Stock #6: Domino’s Pizza Inc. (DPZ)
Domino’s Pizza is the largest pizza company in the world based on global retail sales. The company operates more than 18,000 stores in more than 90 countries.
It generates about half of its sales in the U.S. while 98% of its stores worldwide are owned by independent franchisees.
Source: Investor Presentation
In early March, Domino’s reported (3/1/22) financial results for the fourth quarter of fiscal 2021. It grew its international same stores sales by 1.8% over the prior year’s quarter.
Its U.S. same store sales edged up 1.0%. Adjusted earnings–per–share grew 23% over the prior year’s quarter, from $3.46 to $4.25, partly thanks to a 7% decrease in the share count.
Click here to download our most recent Sure Analysis report on DPZ (preview of page 1 of 3 shown below):
High ROIC Stock #5: eBay Inc. (EBAY)
eBay is an American multinational e–commerce corporation founded in 1995 in San Jose, California. Initially named AuctionWeb, the company changed its name to eBay in 1997 and went public in 1998.
The company manages the ebay.com website, which brings buyers and sellers together in auction and fixed–price formats to buy and sell a wide variety of items worldwide. eBay provides several services including online auction–style sales, instant shopping, online classified advertisements, online event ticket trading and other services.
On February 23rd, 2022, eBay reported fourth quarter results.
In the most recent quarter, gross merchandising volume stood at $20.7 billion, down 10% on an as-reported basis and down 11% on a currency-neutral basis. Annual active buyers fell by 9% to 147 million global active buyers while annual active sellers fell by 8% to 17 million year-over-year.
eBay produced $475 million of operating cash flow and $372 million in free cash flow from continuing operations during the quarter.
Click here to download our most recent Sure Analysis report on eBay (preview of page 1 of 3 shown below):
High ROIC Stock #4: AutoZone Inc. (AZO)
After opening its first store on July 4th, 1979, AutoZone has grown into the leading retailer and distributor of automotive replacement parts and accessories with more than 6,000 stores in the U.S., Puerto Rico, Mexico and Brazil. AutoZone carries new and re-manufactured parts, maintenance items and accessories for cars, SUVs, vans and light trucks.
AutoZone has proven to be recession–resistant thanks to the nature of its business. During rough economic periods, the sales of new cars fall significantly, causing the average age of cars to increase. This favors AutoZone’s business. In the Great Recession, when most companies saw their earnings plunge, AutoZone grew its EPS by 18% in 2008 and another 17% in 2009.
Due to its impressive growth, AutoZone is one of the top car part stocks.
Click here to download our most recent Sure Analysis report on AZO (preview of page 1 of 3 shown below):
High ROIC Stock #3: Moderna Inc. (MRNA)
Moderna is a biotechnology company. It develops therapeutics and vaccines based on messenger RNA for the treatment of infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases, and auto-immune diseases.
The company has 44 development programs, which includes 26 in clinical trials across seven modalities comprising prophylactic vaccines, systemic secreted and cell surface therapeutics, cancer vaccines, intratumoral immuno-oncology, localized regenerative therapeutics, systemic intracellular therapeutics, and inhaled pulmonary therapeutics.
High ROIC Stock #2: HP Inc. (HPQ)
HP Inc. has centered its business activities around two main segments: its product portfolio of printers, and its range of so–called personal systems, which includes computers and mobile devices.
HP reported its fourth quarter (fiscal 2021) results on November 23. The company reported revenue of $16.7 billion for the quarter, which easily beat the analyst consensus estimate, and which was up 9% from the previous year’s quarter.
Source: Investor Presentation
Adjusted EPS totaled $0.94 during the quarter, which beat the analyst consensus estimate easily. EPS rose 52% versus the prior year’s quarter.
Click here to download our most recent Sure Analysis report on HPQ (preview of page 1 of 3 shown below):
High ROIC Stock #1: VeriSign Inc. (VRSN)
VeriSign is a global provider of domain name registry services and internet infrastructure. It also enables internet navigation for many of the world’s most recognized domain names. Verisign enables the security, stability, and resiliency of key internet infrastructure and services.
The company generated $1.33 billion in revenue in 2021.
Final Thoughts
There are many different ways for investors to value stocks. One popular valuation method is to calculate a company’s return on invested capital. By doing so, investors can get a better gauge of companies that do the best job investing their capital.
ROIC is by no means the only metric that investors should use to buy stocks. There are many other worthwhile valuation methods that investors should consider. That said, the top 10 ROIC stocks on this list have proven the ability to create economic value for shareholders.
Further Reading
If you are interested in finding high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
The Dividend Aristocrats List: a group of elite S&P 500 stocks with 25+ years of consecutive dividend increases. The Highest Yielding Dividend Aristocrats: the 20 Dividend Aristocrats with the highest dividend yields right now. The Dividend Champions List: a broader group of stocks with 25+ years of consecutive dividend increases, without the S&P 500 Index inclusion requirement. The Dividend Challengers List: stocks with 5-9 years of consecutive dividend increases. The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases. The Dividend Kings List: considered to be the best-of-the-best among dividend growth stocks, the Dividend Kings are a group of exceptional dividend stocks with 50+ years of consecutive dividend increases. The Blue Chip Stocks List: contains stocks on either the Dividend Achievers, Dividend Aristocrats, or Dividend Kings list. The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.