Updated on November 17th, 2023
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:
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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What 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.
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: NetApp (NTAP)
- Return on invested capital: 26.1%
NetApp Inc., formerly Network Appliance, was founded in 1992 to address the growing need for data storage. Today, the company calls itself the “data authority for hybrid cloud” providing services to simplify and empower a company’s use of its data, as well as accelerate their digital transformation. The company generated over $6.3 billion in sales last fiscal year and earned $1.23 billion in adjusted net income.
On August 23rd, 2023, NetApp reported Q1 fiscal year 2024 results for the period ending July 28th, 2023. For the quarter, the company generated net revenues of $1.43 billion, down 10% year-over-year. Adjusted net income equaled $249 million or $1.15 per share compared to $269 million or $1.20 per share in the first quarter of FY 2023.
Of note, NetApp’s Public Cloud annualized revenue run rate grew 6% year-over-year to $619 million, and the All-flash array annualized net revenue run rate decreased 7% year-over-year to $2.8 billion. In the first quarter, the company returned $506 million to shareholders in share repurchases and dividends.
Click here to download our most recent Sure Analysis report on NetApp (preview of page 1 of 3 shown below):
High ROIC Stock #9: Darden Restaurants Inc. (DRI)
- Return on invested capital: 30.8%
Darden Restaurants Inc. is a restaurant company with a portfolio of brands including Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, and Eddie V’s.
Source: Investor Presentation
On September 21st, 2023, Darden Restaurants Inc. reported the first quarter results for Fiscal Year (FY)2024, ending on August 27, 2023. The company completes its fiscal year at the end of May. In this quarter, total sales grew 11.6% to reach $2.7 billion, driven by a 5.0% increase in blended same-restaurant sales and the contribution of 77 new company-owned Ruth’s Chris Steak House restaurants, and 46 other net new restaurants.
This robust performance is underscored by notable same-restaurant sales growth in key segments, such as Olive Garden at 6.1% and LongHorn Steakhouse at 8.1%. Reported diluted net earnings per share from continuing operations for the quarter were $1.60, with adjusted diluted net earnings per share (excluding $0.18 of Ruth’s Chris transaction and integration costs) increasing by 14.1% to $1.78.
Click here to download our most recent Sure Analysis report on Darden Restaurants Inc. (preview of page 1 of 3 shown below):
High ROIC Stock #8: Best Buy Co. Inc. (BBY)
- Return on invested capital: 35.5%
Best Buy Co. Inc. is one of North America’s largest consumer electronics retailers, with operations in the U.S. and Canada. Best Buy sells consumer electronics, personal computers, software, mobile devices, and appliances and provides services.
Best Buy reported Q1 FY2024 on May 25th, 2023. Enterprise revenue decreased to $9,467M from $10,647M and non GAAP diluted EPS decreased to $1.15 from $1.57 on a year-over year basis. GAAP diluted EPS decreased to $1.11 from $1.49. Comparable enterprise revenue decreased (-10.1%), the sixth straight quarterly decline.
Domestic revenue fell (-11.0%) to $8,801M from $9,894M, driven by a fall in comparable sales and permanent store closures.
Click here to download our most recent Sure Analysis report on Best Buy Co. Inc. (preview of page 1 of 3 shown below):
High ROIC Stock #7: KLA Corporation (KLAC)
- Return on invested capital: 39.4%
KLA Corporation is a supplier to the semiconductor industry. The company supplies process control and yield management systems for semiconductor producers such as TSMC, Samsung and Micron. KLA was created in 1997, through a merger between KLA Instruments and Tencor Instruments, and has grown through a range of acquisitions since then.
Source: Investor Presentation
KLA Corporation reported its fourth quarter (fiscal 2023) earnings results in August. The company reported revenues of $2.36 billion for the quarter, which represents a decline of 5% compared to the prior year’s quarter. This revenue decline was still stronger than what the analyst community had expected, as KLA’s top line beat the analyst consensus by $100 million.
KLA’s revenue decline can be explained by the fact that semiconductor companies have been investing less in new manufacturing capacity in the recent past.
Click here to download our most recent Sure Analysis report on KLA Corporation (preview of page 1 of 3 shown below):
High ROIC Stock #6: Ulta Beauty, Inc. (ULTA)
- Return on invested capital: 45.0%
Ulta has significantly impacted the American beauty retail industry with its strong brand power. Currently operating exclusively in the US, the company had planned a Canadian expansion, which was later cancelled before the pandemic outbreak. Ulta’s loyalty program is highly regarded and among the best in the retail sector, a common attribute of the leading retailers that I cover.
As of the latest update, the program had 39 million members, which represents a 9% YoY increase and accounts for roughly a quarter of all women in the US. This group generates 95% of sales and averages $200 of spend per year. The marketing and data advantages provided by this program are immensely valuable and offer a competitive edge for the company.
In the beauty product sales industry, top brands hold significant power and determine the locations where their products are sold. These high-end brands are highly selective, and the long-standing relationships developed over time prevent newcomers and some e-commerce companies from accessing their products.
High ROIC Stock #5: Lowe’s Companies (LOW)
- Return on invested capital: 56.8%
Lowe’s Companies is the second-largest home improvement retailer in the US (after Home Depot). Lowe’s operates or services more than 2,200 home improvement and hardware stores in the U.S. and Canada.
Lowe’s reported second quarter 2023 results on August 22nd, 2023. Total sales for the second quarter came in at $25 billion compared to $27.5 billion in the same quarter a year ago. Comparable sales decreased 1.6% and net earnings declined 2.4% year-over-year to $4.56 per share.
The company repurchased 10.1 million shares in the second quarter for $2.2 billion. Additionally, it paid out $624 million in dividends. Lowe’s launched same-day delivery nationwide, and expanded its rural merchandising framework to 300 stores.
The company reaffirmed its fiscal 2023 outlook and believes it can achieve adjusted diluted EPS in the range of $13.20 to $13.60 on total sales of roughly $88 billion.
Click here to download our most recent Sure Analysis report on Lowe’s (preview of page 1 of 3 shown below):
High ROIC Stock #4: Apple, Inc. (AAPL)
- Return on invested capital: 59.5%
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.
Apple is the #1 holding of Berkshire Hathaway (BRK.B), making the technology giant one of the top Warren Buffett stocks. Apple is also a top holding of other influential investors, such as Kevin O’Leary.
On November 2nd, 2023, Apple reported results for the fourth quarter of fiscal year 2023 (Apple’s fiscal year ends the last Saturday in September). It grew its sales 3% over last year’s quarter thanks to record sales of iPhone for a fourth quarter and all-time high Service sales. The iPhone segment generated 49% of total sales while Service sales comprised 25% of total sales.
Earnings-per-share grew 13%, from $1.29 to $1.46, and exceeded the analysts’ consensus by $0.07. Notably, Apple has missed the analysts’ estimates only once in the last 20 quarters. Apple provided guidance for higher iPhone sales but flat revenue in 2024.
Click here to download our most recent Sure Analysis report on AAPL (preview of page 1 of 3 shown below):
High ROIC Stock #3: Bath & Body Works (BBWI)
- Return on invested capital: 87.0%
Bath & Body Works is a specialty retailer of home fragrance, body care, and soaps and sanitizer products. Its brands include Bath & Body Works, White Barn, and more.
The company operates over 1,700 company-operated retail stores and another 300+ international partner-operated stores. The company was formerly known as L Brands, Inc. and changed its name to Bath & Body Works, Inc. in August 2021.
High ROIC Stock #2: HP Inc. (HPQ)
- Return on invested capital: 87.0%
Hewlett-Packard’s origins can be traced back to 1935 when two men started a business in a one-car garage. Over the past eight decades, the company has made significant contributions in electronic test equipment, computing, data storage, networking, software, and services.
HP reported its third quarter (fiscal 2023) results on August 29. The company reported revenue of $13.2 billion for the quarter, which missed the analyst consensus estimate, and which was down 10% from the previous year’s quarter. This was slightly better than the revenue decline that HP experienced during the previous quarter, while the weak year-over year performance can be explained by an overall economic downturn.
Click here to download our most recent Sure Analysis report on HP Inc. (preview of page 1 of 3 shown below):
High ROIC Stock #1: AutoZone Inc. (AZO)
- Return on invested capital: 180.5%
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.
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 of 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.
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 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.