Updated on December 7th, 2022 by Bob Ciura
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: Fortinet, Inc. (FTNT)
- Return on invested capital: 46.6%
Fortinet is a technology company that provides automated cybersecurity solutions worldwide. It offers FortiGate hardware and software licenses that provide various security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, web filtering, anti-spam, and wide area network acceleration.
Source: Investor Presentation
Fortinet, Inc. provides broad, integrated, and automated cybersecurity solutions around the world. It offers FortiGate hardware and software licenses that provide various security and networking functions. Fortinet is a large-cap stock with a market cap above $40 billion.
Fortinet is also a high beta stock.
High ROIC Stock #9: Moderna Inc. (MRNA)
- Return on invested capital: 49.1%
Moderna is a biotechnology company. It develops therapeutics and vaccines based on messenger RNA for the treatment of infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases, and auto-immune diseases.
The company has over 40 development programs, which includes 26 in clinical trials across seven modalities comprising prophylactic vaccines, systemic secreted and cell surface therapeutics, cancer vaccines, intratumoral immuno-oncology, localized regenerative therapeutics, systemic intracellular therapeutics, and inhaled pulmonary therapeutics.
High ROIC Stock #8: Gen Digital (GEN)
- Return on invested capital: 49.1%
Gen Digital was formed after the merger of NortonLifeLock and Avast. The company provides security solutions for consumers around the world. It offers Norton 360, an integrated platform providing security with a subscription model for personal computers and mobile devices.
It also offers Norton and LifeLock identity theft protection solution that offers monitoring, alerts, and restoration services to its customers. The company also provides Norton Secure VPN solutions.
GEN stock has a market capitalization above $13 billion. Shares have a current dividend yield of 2.2%.
High ROIC Stock #7: Advanced Micro Devices (AMD)
- Return on invested capital: 49.7%
Advanced Micro Devices was founded in 1959 and in the decades since it has become a sizable player in the chip market.
Advanced Micro Devices was founded in 1959 and in the decades since it has become a sizable player in the chip market. AMD is heavy in gaming chips, competing with others like NVIDIA for the lucrative, but competitive market.
Source: Investor Presentation
In the 2022 second quarter, AMD reported revenue of $6.6 billion. This was a 70% year-over-year increase, driven by organic growth as well as the contribution from Xilinx. Gross margin contracted two percentage points to 46% for the quarter. Operating income rose 22% to $526 million. Adjusted earnings-per-share of $1.05 increased 67%.
High ROIC Stock #6: 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 third quarter 2022 results on November 16th. Total sales for the third quarter came in at $23.5 billion compared to $22.9 billion in the same quarter a year ago. Comparable sales increased 2.2%, while the U.S. home improvement comparable sales increased 3.0%. Of note, pro customer sales rose 19% year-over-year.
The company took a $2.1 billion pre-tax non-cash asset impairment charge related to its Canadian retail business. The sale of the Canadian retail business is expected to close in early 2023. Adjusted net earnings, which excludes this significant impairment charge, rose 19.8% year-over-year to $3.27 per share.
The combination of multiple expansion, 6% expected EPS growth and the 2.2% dividend yield lead to total expected returns of 12.6% per year.
Click here to download our most recent Sure Analysis report on Lowe’s (preview of page 1 of 3 shown below):
High ROIC Stock #5: 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 July 28th, 2022, Apple reported Q4 fiscal year 2022 results for the period ending September 24th, 2022. (Apple’s fiscal year ends the last Saturday in September). For the quarter, Apple generated revenue of $90.146 billion, an 8.1% increase compared to Q4 2021.
For the year Apple generated revenue of $394.3 billion, a 7.8% increase compared to 2021, driven by a 7.0% increase in iPhones (52% of all sales). Service sales equaled $78.1 billion, 19.8% of all sales, representing a 14.2% year-over-year increase. Net income for the year equaled $99.8 billion or $6.11 per share compared to $94.7 billion or $5.61 per share in 2021.
Click here to download our most recent Sure Analysis report on AAPL (preview of page 1 of 3 shown below):
High ROIC Stock #4: 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 #3: Otis Worldwide (OTIS)
- Return on invested capital: 89.5%
Otis Worldwide Corp. debuted as an independent, publicly traded company on April 3rd, 2020, after being spun off from United Technologies (previously UTX, now Raytheon Technologies, RTX). However, the company’s history is extensive after being founded in 1853 and having previously gone public in 1920.
Today Otis is the leading company for elevator and escalator manufacturing, installation, and service. The company’s products move 2 billion people per day and maintain approximately 2.1 million customer units worldwide.
Source: Investor Presentation
On October 26th, 2022, Otis reported Q3 2022 results for the period ending September 30th, 2022. For the quarter, total revenue equaled $3.344 billion, a -7.6% decline compared to Q3 2021. New Equipment sales declined -13.9%, while the Service segment saw a -2.2% declines in sales. Adjusted net income equaled $324 million or $0.77 per share compared to $331 million or $0.77 per share in Q3 2021.
Otis also revised its 2022 outlook. The company now expects $13.4 billion to $13.5 billion in sales (down from $13.6 billion to $13.8 billion) and adjusted earnings-per-share of $3.11 to $3.15 (down from $3.17 to $3.21).
Click here to download our most recent Sure Analysis report on OTIS (preview of page 1 of 3 shown below):
High ROIC Stock #2: O’Reilly Automotive (ORLY)
- Return on invested capital: 90.4%
O’Reilly Automotive was founded in 1957 by the O’Reilly family and is now one of the largest specialty retailers of automotive parts and accessories in the U.S., serving both the do–it–yourself and professional service provider markets. The company operates more than 5,400 stores in 47 states and about 21 stores in Mexico.
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 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 Highest Yielding Dividend Aristocrats: the 20 Dividend Aristocrats with the highest dividend yields right now.
- 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.