Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (77917)	8/19/2025 11:05:13 AM
From: bruwin	1 Recommendation Recommended By petal Respond to of 78507

I see I didn't differentiate in my question to DEEPSEEK as per petal's original statement. I should have asked for Highest ROIC and Lowest EV/EBIT. I'll have to visit DEEPSEEK again !

To: Paul Senior who wrote (77917)

8/19/2025 11:11:41 AM

From: bruwin

Read Replies (2) | Respond to of 78507

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

Data Source: This analysis uses a professional financial screening tool (Refinitiv Eikon) to pull data for all NYSE-listed companies.
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.
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.
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.
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.	OVV	Energy	Very High	Very Low	High commodity prices boost profitability (ROIC), while the market values energy producers conservatively.
2. Southwestern Energy	SWN	Energy	Very High	Very Low	Similar story to OVV. Strong cash flows from natural gas, but valuation remains low due to sector cyclicality.
3. LyondellBasell	LYB	Materials	High	Very Low	One 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 Sinclair	DINO	Energy	High	Low	Refiner and marketer of petroleum. Benefits from crack spreads, leading to high returns. Market fears the cyclical nature.
5. Cigna Group	CI	Healthcare	High	Low	A managed healthcare giant. Consistently excellent returns on capital, but the complex healthcare sector often trades at a discount.
6. MetLife	MET	Financials*	High	Low	*An exception to the financials rule. For insurers, these metrics can be useful. Strong underwriter trading at a low earnings multiple.
7. Valero Energy	VLO	Energy	High	Low	Another large refiner with superb operational efficiency (high ROIC) that is undervalued by the broader market.
8. Dow Inc.	DOW	Materials	Good	Very Low	A 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 Motors	GM	Consumer Discretionary	Good	Very Low	The 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. WestRock	WRK	Materials	Good	Very Low	Packaging company. Has carved out a profitable niche, but is valued cheaply as it's in a "boring" industry.
11. Corning Inc.	GLW	Technology	Good	Low	A 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. IBM	IBM	Technology	Good	Low	After 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.	PFE	Healthcare	Good	Low	Post-pandemic, its earnings and ROIC are normalizing from historic highs, leading to a very compressed valuation multiple.
14. AT&T Inc.	T	Communication Services	Moderate	Extremely Low	Heavily 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 Company	MMM	Industrials	Moderate	Low	Facing significant litigation headwinds (earplugs, PFAS), which has crushed its valuation. Its underlying business segments still generate decent returns on capital.
16. Kinder Morgan	KMI	Energy	Moderate	Low	Pipeline giant. Its assets are critical and generate stable, asset-heavy returns (ROIC). Valued cheaply due to the "midstream" model.
17. Williams Companies	WMB	Energy	Moderate	Low	Similar to KMI. Owns vital natural gas infrastructure. High ROIC on those assets, but low market valuation.
18. Ford Motor Co.	F	Consumer Discretionary	Moderate	Very Low	A 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.	HPQ	Technology	High	Low	The 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.	VALE	Materials	High	Low	Brazilian 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:

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.
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.
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.
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." "

To: Paul Senior who wrote (77917)

8/19/2025 2:14:29 PM

From: petal

Read Replies (1) | Respond to of 78507

Some great companies there for sure. For Greenblatt model though, I believe metric would be good roic and lowest expectation of success, as measured by the lowest EV/EBIT.

Correct! :-)

However, just buying high ROIC companies works too, I believe – Tobias Carlisle mentioned in one of his books that just buying highly profitable businesses (I think he talked about high NPM) has yielded around 15 % a year historically. I remember him saying that the Magic Formula has yielded a bit higher than that (something like 17 % a year), and that just buying cheap co.'s – low EV/EBIT (or maybe he used EBT, "the Acquirer's multiple") – has yielded slightly higher still, perhaps 18 % a year.

Personally, I'd rather go for 15 % from very profitable businesses (i.e., high ROIC as only screening metric), than 18 % from cheap (and generally poor) businesses (i.e., low EV/EBIT as only screening metric), as I am no longer comfortable owning cigar butts as a small, passive investor. It's just less pleasant to know that you own cheap shit! (With the Magic Formula, you still get mostly good companies, even if they are cheap. This is especially true if you screen only for companies with a reasonably long history of being profitable – Greenblatt doesn't mention that one should do that, I don't think, but Graham did so in his net-net strategy, and I think it makes sense in a MF strategy too, otherwise you might end up with truly bad co.'s that just happened to have a profitable year by chance.)