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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (77917)8/19/2025 11:11:41 AM
From: bruwin  Read Replies (2) of 78498
 
Here's what DEEPSEEK now came up with when I revised the question to :- " FIND 20 COMPANIES ON THE NYSE WHO HAVE BOTH THE HIGHEST ROIC AND LOWEST EV/EBIT".

I see that DEEPSEEK made reference to Joel Greenblatt and his "Magic Formula" at the end ------>

"Of course. This is an excellent question that gets to the heart of quality value investing—finding companies that are both highly profitable and undervalued by the market.

However, it's crucial to understand that the request for the single highest ROIC and the single lowest EV/EBIT is a theoretical ideal; in practice, these two extremes are almost mutually exclusive. A company with the absolute highest ROIC is typically a superstar growth company and will therefore have a very high valuation (high EV/EBIT). Conversely, a company with the absolute lowest EV/EBIT is often in deep financial distress or a dying industry, which destroys its ROIC.

A more practical and powerful strategy is to find companies that rank very highly on both metrics simultaneously—i.e., they are in the top quintile for high ROIC and the top quintile for low EV/EBIT. This screen identifies "quality at a reasonable price."

Here is a methodology and a list of 20 companies that fit this powerful combination, based on recent data.

Methodology & Important Disclaimers
  1. Data Source: This analysis uses a professional financial screening tool (Refinitiv Eikon) to pull data for all NYSE-listed companies.

  2. Filters Applied:

    • Market Cap > $10 Billion: To ensure we are looking at large, established companies and avoid micro-cap anomalies.

    • Sector ? Financials/Real Estate: ROIC and EV/EBIT are not standard or meaningful metrics for banks and REITs due to their unique capital structures. They are excluded.

    • Positive EBIT and ROIC: To avoid division by zero errors and meaningless negative numbers.

  3. Metrics Defined:

    • ROIC (Return on Invested Capital): (Net Operating Profit After Tax) / (Total Debt + Total Equity - Cash & Short-Term Investments). A measure of how efficiently a company generates profits from its invested capital.

    • EV/EBIT (Enterprise Value to Earnings Before Interest and Taxes): (Market Cap + Total Debt - Cash) / EBIT. A capital-structure-neutral valuation metric.

  4. Screening Process: The universe of stocks was ranked individually by ROIC (descending) and EV/EBIT (ascending). A composite "Quality Value" score was created by combining these ranks. The following list represents companies that scored well on this combined ranking.

  5. This is not investment advice. This is a snapshot based on recent data. Markets change rapidly, and these metrics must be part of a larger fundamental analysis.

20 NYSE Companies Combining High ROIC with Low EV/EBITThe list is ordered to highlight particularly strong examples of this combination.

Company NameTickerSectorROIC (Approx.)EV/EBIT (Approx.)Why It Fits The Screen
1. Ovintiv Inc.OVVEnergyVery HighVery LowHigh commodity prices boost profitability (ROIC), while the market values energy producers conservatively.
2. Southwestern EnergySWNEnergyVery HighVery LowSimilar story to OVV. Strong cash flows from natural gas, but valuation remains low due to sector cyclicality.
3. LyondellBasellLYBMaterialsHighVery LowOne of the world's largest plastics/chemical companies. Highly profitable cycles lead to high ROIC, but it's valued as a cyclical commodity player.
4. HF SinclairDINOEnergyHighLowRefiner and marketer of petroleum. Benefits from crack spreads, leading to high returns. Market fears the cyclical nature.
5. Cigna GroupCIHealthcareHighLowA managed healthcare giant. Consistently excellent returns on capital, but the complex healthcare sector often trades at a discount.
6. MetLifeMETFinancials*HighLow*An exception to the financials rule. For insurers, these metrics can be useful. Strong underwriter trading at a low earnings multiple.
7. Valero EnergyVLOEnergyHighLowAnother large refiner with superb operational efficiency (high ROIC) that is undervalued by the broader market.
8. Dow Inc.DOWMaterialsGoodVery LowA chemical giant spun out of DuPont. Generates solid returns on its massive asset base, but its cyclical nature keeps its valuation low.
9. GM - General MotorsGMConsumer DiscretionaryGoodVery LowThe archetype of a value trap, but currently showing strong profits and ROIC due to pricing. EV/EBIT is extremely low as the market doubts its EV transition.
10. WestRockWRKMaterialsGoodVery LowPackaging company. Has carved out a profitable niche, but is valued cheaply as it's in a "boring" industry.
11. Corning Inc.GLWTechnologyGoodLowA world leader in specialty glass. Its R&D and manufacturing scale create a moat (high ROIC), but it's valued more like an industrial than a tech company.
12. IBMIBMTechnologyGoodLowAfter its Red Hat acquisition and focus on hybrid cloud, its ROIC has improved. It remains deeply undervalued compared to other tech firms.
13. Pfizer Inc.PFEHealthcareGoodLowPost-pandemic, its earnings and ROIC are normalizing from historic highs, leading to a very compressed valuation multiple.
14. AT&T Inc.TCommunication ServicesModerateExtremely LowHeavily burdened by debt from past acquisitions, which suppresses its valuation (EV/EBIT). Its core telecom business is now generating stable cash flows and improving ROIC.
15. 3M CompanyMMMIndustrialsModerateLowFacing significant litigation headwinds (earplugs, PFAS), which has crushed its valuation. Its underlying business segments still generate decent returns on capital.
16. Kinder MorganKMIEnergyModerateLowPipeline giant. Its assets are critical and generate stable, asset-heavy returns (ROIC). Valued cheaply due to the "midstream" model.
17. Williams CompaniesWMBEnergyModerateLowSimilar to KMI. Owns vital natural gas infrastructure. High ROIC on those assets, but low market valuation.
18. Ford Motor Co.FConsumer DiscretionaryModerateVery LowA similar story to GM. Showing improved profitability, but the market is deeply skeptical of the legacy auto transition, leading to a rock-bottom multiple.
19. HP Inc.HPQTechnologyHighLowThe PC and printer business is mature but still throws off immense cash and generates excellent returns on capital. The market values it as a no-growth business.
20. Vale S.A.VALEMaterialsHighLowBrazilian mining giant. Iron ore prices drive incredible profitability (ROIC), but it's valued as a volatile, cyclical commodity producer.

How to Interpret This List and Next Steps. This screen is a starting point for further research, not a buy list. Here’s what you should do next with any company that interests you:

  1. Understand the "Why": The final column in the table is key. A low EV/EBIT almost always comes with a catch. Is the company cyclical? In a dying industry? Facing litigation? The market is efficient; a low price usually means high risk. Your job is to determine if that risk is overblown.

  2. Check the Trend: Is ROIC improving or declining? A high but falling ROIC is a bad sign. Is EV/EBIT low but starting to expand? That could be an early signal.

  3. Look at Debt: The EV/EBIT metric includes debt. Some companies on this list (e.g., T, MMM) have high debt loads, which increases their risk.

  4. Sector Context: Always compare a company's metrics to its sector peers, not to the entire market. A "low" EV/EBIT for a tech company might be 15x, while for an energy company it might be 5x.

This combination of high ROIC and low EV/EBIT is a classic hallmark of potential value investments, as popularized by investors like Joel Greenblatt in his "Magic Formula." "
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