Unleash Your Investing Potential with These Top High-ROIC Stocks for 2024!

Investors are always on the lookout for valuable financial ratios that can enhance their research process and help identify high-quality businesses. Among these ratios, return on invested capital (ROIC) stands out as an essential metric that sheds light on a company’s ability to efficiently allocate capital. By understanding ROIC and utilizing it to screen for top-performing stocks, investors can focus on businesses that generate a profitable return for their shareholders.

To delve deeper into the world of high ROIC stocks in the S&P 500, we’ve curated a list of the top 10 companies excelling in this regard. But before we dive into the rankings, let’s take a moment to understand what ROIC is and why it’s crucial for investors.

What Is ROIC?

ROIC, or return on invested capital, is a financial ratio that showcases a company’s prowess in capital allocation. Calculated by dividing a company’s after-tax net operating profit by its total debt and equity capital, ROIC is then compared to the company’s weighted average cost of capital (WACC).

To obtain the WACC, investors can compute the weighted average of the cost of a company’s debt and equity. The cost of debt is determined by the average yield to maturity for a company’s outstanding debt. On the other hand, the cost of equity is often calculated using the capital asset pricing model (CAPM).

Once the WACC is identified and pitted against the ROIC, investors aim to see the latter outpace the former. A higher ROIC surpassing the WACC signifies that the business is efficiently utilizing its capital to yield profitable returns, thereby creating economic value for its stakeholders.

The Top 10 Highest ROIC Stocks

Without further ado, let’s explore the cream of the crop in terms of ROIC among S&P 500 companies. The following companies have displayed exemplary ROIC figures, showcasing their commitment to efficient capital allocation and value creation:

1. Alphabet Inc. (GOOG)(GOOGL)
   • Annual expected returns: 16.4%
   • Return on invested capital: 31.0%
2. EOG Resources
   • Annual expected returns: 15.7%
   • Return on invested capital: 22.0%
3. Meta Platforms Inc. (META)
   • Annual expected returns: 14.5%
   • Return on invested capital: 31.9%
4. Nike Inc. (NKE)
   • Annual expected returns: 14.3%
   • Return on invested capital: 21.5%
5. MarketAxess Holdings (MKTX)
   • Annual expected returns: 14.1%
   • Return on invested capital: 21.4%
6. Applied Materials Inc. (AMAT)
   • Annual expected returns: 12.4%
   • Return on invested capital: 30.2%
7. Qualcomm Inc. (QCOM)
   • Annual expected returns: 12.4%
   • Return on invested capital: 25.9%
8. APA Corp. (APA)
   • Annual expected returns: 11.4%
   • Return on invested capital: 21.7%
9. Yum Brands Inc. (YUM)
   • Annual expected returns: 11.2%
   • Return on invested capital: 44.6%
10. Alphabet Inc. (GOOG)(GOOGL)
    • Annual expected returns: 16.4%
    • Return on invested capital: 31.0%

By focusing on companies with high ROIC figures, investors can align their investment strategies with businesses that excel in generating economic value through efficient capital allocation. So, take a closer look at these top performers and consider adding them to your investment portfolio for long-term success and growth.