We would like to invest in easy-to-understand UK stocks with quality attributes to get the best returns each year. The shortcut to finding the latter is to focus on a metric known as Return on Capital Used (ROCE).
What is ROCE?
ROCE is the financial ratio that investors use to measure a company’s profitability and capital utilization. The higher the number, the better, as it means that management is investing money wisely to generate more money. This could be the basis for higher dividends, or (preferably) growth, reflected in rising stock prices, and everything is going well.
It’s important because it helps show the quality of the company. If a company is buying an asset that cannot generate returns, the stock price will not work. If that is possible, the opposite should be true. As an investor, I want management to invest effectively for growth and spend money to make more money in the future.
UK stocks with high ROCE
Considering the importance of ROCE, I set up a screen for companies with over 20 readings and a significant increase in cash flow over 5 years. This simple screen provided some UK stocks that you might consider adding to your portfolio.
They included iron ore pellet producers Ferrex Po (LSE: FXPO).. The list also included UK stocks such as: Sylvania Platinum, Somero Enterprise, Boohoo, Team17 And other numbers. In total, the screen threw 36 UK stocks that met the criteria.
Ferrexpo-Quality UK Share?
Following this simple exercise, I wanted to do more Ferrexpo details.. This year we should benefit from the growth of economic activity, especially in emerging markets. Steel-based construction and other industries should boost demand for iron ore and, in theory, boost the price of Felexpo. The combination of volume and price increases can really help the top and bottom lines.
The future may be very bright, but the P / E is only around 4. This is one of the lowest price-earnings ratios I’ve seen. I think the stock is very cheap, so the evaluation is attractive.If i see Evraz, This is large, but because it is about the same, its P / E is about 8.
However, like any other miner, there is a risk because the global market (rather than the company) controls the price of the product. Any decline is very likely to hurt Ferrexpo’s share price, probably because a new variant of Covid slows global economic recovery.
The company has in the past There was also a governance issue, This is offensive to investors like me. The auditor investigated large payments to a suspected charity run by the CEO. The mine is also located in Ukraine and is potentially endangered by Russia’s movements in that country.
As a miner, there are always quite a few risks. That said, the high return on capital used, the global economic recovery and the low valuation of equities make us want to add Ferrexpo to our portfolio. Seems to me a high quality British stock.
Andy Ross does not own the mentioned shares. The Motley Fool UK recommends the boohoo group and Somero Enterprises, Inc. The views on companies in this article are those of writers, so Share Advisor, Hidden Winners, and professionals. Here at The Motley Fool, by exploring different insights, Better investors than us.
I buy these high ROCE UK stocks
Source link I buy these high ROCE UK stocks