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Solid Net Profit Margin Makes These 4 Stocks Worth Buying Now

The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.

A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. Industrias Bachoco, S.A.B. de C.V. IBA, AMN Healthcare Services, Inc. AMN, Veritiv Corporation VRTV and CONSOL Energy Inc. CEIX boast solid net profit margins.

Net Profit Margin = Net profit/Sales * 100.

In simple terms, net profit is the amount a company retains after deducting all costs, interest, depreciation, taxes and other expenses. In fact, the net profit margin can turn out to be a potent point of reference to gauge the strength of a company’s operations and its cost-control measures.

Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric not only attracts investors but also draws well-skilled employees who eventually enhance a business’ value.

Moreover, a higher net profit margin compared with its peers provides a company with a competitive edge.

Pros and Cons

Net profit margin helps investors gain clarity on a company’s business model in terms of pricing policy, cost structure and manufacturing efficiency. Hence, a strong net profit margin is preferred by all classes of investors.

However, net profit margin, as an investment criterion, has its share of pitfalls. The metric varies widely from industry to industry. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.

In addition, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.

Furthermore, for companies preferring to grow with debt instead of equity funding, higher interest expenses usually weigh on net profit. In such cases, the measure is rendered ineffective while analyzing a company’s performance.

The Winning Strategy

A healthy net profit margin and solid EPS growth are the two most sought-after elements in a business model.

Apart from these, we have added a few criteria to ensure maximum returns from this strategy.

Screening Parameters

Net Margin 12 months – Most Recent (%) greater than equal to 0: High net profit margin indicates solid profitability.

Percentage Change in EPS F(0)/(F-1) greater than equal to 0: It indicates earnings growth.

Average Broker Rating (1-5) equal to 1: A rating of #1 indicates brokers’ extreme bullishness on the stock.

Zacks Rank less than or equal to 2: Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environments. You can see the complete list of today’s Zacks #1 Rank stocks here.

VGM Score of A or B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

Here we have picked four stocks — Industrias Bachoco, AMN Healthcare, Veritiv and CONSOL Energy — from the 61 stocks that qualified the screen:

Industrias Bachoco began its operations in 1952 in the state of Sonora, Mexico, and has since grown into the country's undisputed leader in poultry production and is one of the world’s top 10 producers. It also produces and distributes eggs, swine and balanced feed. Industrias Bachoco sports a Zacks Rank of 1, at present, and has a VGM Score of A.

The Zacks Consensus Estimate for Industrias Bachoco’s 2022 earnings has been revised upward to $6.05 per share from $5.16 in the past 30 days. IBA surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 61.9%.

AMN Healthcare is a travel healthcare staffing company. Its business has evolved beyond traditional healthcare staffing and recruitment services. It has become a strategic total talent solutions partner for its clients. At present, the stock sports a Zacks Rank #1 and has a VGM Score of A.

The Zacks Consensus Estimate of $11.26 for AMN Healthcare’s current-year earnings has moved 85 cents north in the past 30 days. AMN surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 15.7%.

Veritiv engages in offering North American business-to-business distribution solutions. It provides packaging, print and print management, publishing, supply chain, facility and logistics solutions that span the entire lifecycle of core business operations. Veritiv currently sports a Zacks Rank #1 and has a VGM Score of A.

The Zacks Consensus Estimate of $21.25 for Veritiv’s 2022 earnings has moved 15.5% north in the past 30 days. VRTV surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 37%.

CONSOL Energy is a producer and exporter of high-Btu bituminous thermal and crossover metallurgical coal. It owns and operates productive longwall mining operations, primarily in the Northern Appalachian Basin. The company currently carries a Zacks Rank of 1 and has a VGM Score of B.

The Zacks Consensus Estimate for CONSOL Energy’s 2022 earnings has been revised upward to $9.55 per share from $5.56 in the past 30 days. CEIX surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 15.8%.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks' portfolios and strategies are available at: https://www.zacks.com/performance/.


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AMN Healthcare Services Inc (AMN) : Free Stock Analysis Report
 
Veritiv Corporation (VRTV) : Free Stock Analysis Report
 
Consol Energy Inc. (CEIX) : Free Stock Analysis Report
 
Industrias Bachoco, S.A. de C.V. (IBA) : Free Stock Analysis Report
 
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