5 Wildly Profitable Stocks
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Companies are continually on a search for higher profit margins. Acquisitions, new product lines, R&D, lean management, and even layoffs are means to attaining higher profits – either now or in the future.
Investors can look at these cues to find growing, stable, and profitable companies. High profits are all but certain for the company with an entrenched competitive advantage, a growing market, a strong product mix, and executives that invest capital where it can produce the highest returns.
For investors, these companies compound quickly and can outperform the broad market. Using profit margin and operating margins as metrics, here are five wildly profitable companies.
Baidu (NASDAQ: BIDU) is the leader in Chinese search. The company’s incredible profit margins stem from its strong grip on its industry, coupled with the firm’s knack for getting into new markets where it can reap ad revenue.
Baidu returned 53% on its equity during its last reported quarter (Q2). This number is significant because Baidu is not heavily leveraged – it has $2.9B in cash, compared to just $453 million in debt.
The darling of nearly every investor is the highly profitable, fast-compounding Apple (NASDAQ: AAPL). Like Baidu, Apple had an incredible return on equity – 44.3%. However, I am even more impressed with how Apple achieved this.
Apple gained top market share in a host of new industries by creating incredible, high-end products, then telling compelling stories to sell and distribute those goods. With its marketing genius, Apple has become a wildly profitable firm. What’s more, the company has achieved its high returns with the use of little to no debt. At the end of Q2, Apple’s most recent reporting period, Apple held $27.7B in cash and no debt.
Operating in a variety of software, hardware, and service businesses, Oracle (NYSE: ORCL) has morphed itself into a seller of high-value, high-margin goods. Despite slight negative quarterly revenue growth year-over-year (-2.3%), Oracle boosted its year over year earnings growth 10.5%.
Oracle’s feat is impressive in the crowded software industry – and even more impressive in the increasingly competitive hardware industry, where its subsidiary Sun Microsystems competes.
Despite a hiccup in recent earnings, Google (NASDAQ: GOOG) controls one of the fastest-growing assets in the world: the internet. Google’s ability to sign users and to ink them to more and more services is compelling.
Products like Android phones and the Nexus 7 may not be key “front-door” money makers for Google, buy they generate a new host of users for its services because the devices come pre-installed with numerous Google apps. Google’s success is one reason it delivers a 24% ROE to investors.
Microsoft (NASDAQ: MSFT) saw year over year earnings decline 22.2%. On the positive side, Microsoft had $66.1B in cash and just $12.4B in debt at the end of last quarter, indicating that its impressive 24.5% ROE came from earnings, not leverage.
Microsoft is soon due to release its new tablet, which starts at $499 and features the new Windows 8 software. If the tablet is a hit, Microsoft could see the positive results flow to its Q4 income statement.
Finally, Microsoft offers a 3.2% dividend, a rarity for a tech giant. Investors hoping to own a stock with quality earnings and a nice dividend should take a hard look at Microsoft.
As companies continually tweak their business models, product mixes, and cost structures, some companies will inevitably rise to the top of their sectors. The companies above are market-leading companies with huge “moats” of protection around their core businesses.
If the market begins to downtrend, I will be taking a hard look at these companies, in hopes of buying them at bargain prices.
Know What You Own
The stakes are high and the opportunity is huge after Apple’s introduction of the iPhone 5, so to help investors understand this epic Apple event, the Fool has released an exclusive update dedicated to the iPhone 5. By picking up a copy of this premium research report on Apple, you'll learn everything you need to know, and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.
ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Baidu, Google, Microsoft, and Oracle. Motley Fool newsletter services recommend Apple, Baidu, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.