5 Long Term Stocks With High ROE and ROCE

When it comes to investing for the long term, identifying stocks that consistently deliver high returns on equity (ROE) and return on capital employed (ROCE) can be a powerful strategy.

ROE and ROCE are key financial metrics that measure a company's ability to generate profits from its capital, helping investors assess how efficiently a company is using its resources to grow.

High ROE and ROCE stocks typically signal a strong competitive position, effective management, and the potential for sustainable profitability over time.

Generally, high returns on capital are generated by companies that operate in traditionally more defensive businesses such as consumer staples, information technology, insurance, etc.

Such companies have lower correlation to change in economic growth as they deal in products and services that are essential in nature with almost zero correlation to economic swings.

High return on capital indicates that the company makes higher profit on each and every penny they invest into their business.

These companies not only excel in utilizing their capital to generate robust returns but also operate in sectors with favourable growth trends, making them attractive investment opportunities.

In this article, we will explore five such high ROE and ROCE stocks that are well poised for long term growth.

Read on...

#1 Nestle India

Nestle India Limited is a subsidiary of Nestle which is a Swiss multi-national corporation. The company operates in the food segment.

The company is among the top two players in most of its product categories, including milk products and nutrition, beverages, prepared dishes and cooking aids, and chocolate and confectionery.

Nestle owns brands such as Nescafe, Maggi, Milkybar, Kitkat, Bar-One, Milkmaid, Nestea, etc. The company's distribution consists of 10,000+ distributors and more than 5.2 m outlets.

Nestle derives 96% of its revenues from the domestic market and balance 4% from exports.

The company has 9 manufacturing facilities located in Moga (Punjab), Choladi (Tamil Nadu), Nanjangud (Karnataka), Samalkha (Haryana), Ponda (Goa), Bicholim (Goa), Pantnagar (Uttarakhand), Tahliwal (HP), and Sanand (Gujarat).

Nestle has launched 130 new products in the last 7 years and its many new projects are in the pipeline. Some of its recent launches include Maggi Korean noodles, Maggi oats noodles with millet magic, and Gerber puffs.

Coming to the financials, Nestle witnessed a flat growth in net sales for half year ended September 2024 at 6.6% YoY. EBITDA growth for the half year came in at 14.5% YoY with margins coming in at 24.4% in H1FY25 versus 22.7% in H1FY24.

Nestle India Limited reported a return on equity of 135% and return on capital employed of 169% for the financial year ended March 2024.

Going ahead, management believes that sustained rural growth, premiumization and increased focus on innovation and cost efficiency shall allow the company to portray better results in FY25.

Shares of Nestle India Ltd are down 6% in the last year due to muted operational performance.

#2 Life Insurance Corporation of India

Life Insurance Corporation (LIC) is the largest insurance provider company in India. It has a market share of above 66.2% in new business premium.

The company offers participating insurance products and non-participating products like unit-linked insurance products, saving insurance products, term insurance products, health insurance, and annuity & pension products.

LIC is ranked fifth globally by life insurance GWP and tenth globally in terms of total assets. It is the largest asset manager in India with assets under management of Rs 53.5 tn as of Jun 2024, which is 18% of India's GDP.

The company's investments in listed equity represented around 4% of the total market capitalization of NSE.

LIC has an omnichannel distribution platform which comprises individual agents, bancassurance partners, alternate channels (corporate agents, brokers, and insurance marketing firms), digital sales (through a portal on Corporation's website), micro insurance agents, and point of salespersons-life insurance scheme.

The company has the largest individual agent network among life insurance entities in India, comprising approximately 1.33 m individual agents. It has 2,048 branch offices, and 1,559 satellite offices in India, covering 91% of all districts in India.

Coming to the financials, LIC of India Ltd reported revenue growth of 13.5% while the operating profits were up by 2.3% for H1FY25. EBITDA margins deteriorated from 8.6% in H1FY24 to 7.8% in H1FY25.

The company reported a high return on equity and return on capital employed of 63.4% and 73% respectively in the last year.

Going ahead, the management remains optimistic about adapting to market demands and regulatory changes while ensuring customer-centric product offerings.

Life Insurance Corporation of India stock is up 36% in the last one year on the back of robust financial performance.

#3 Titan Company

Titan Company Ltd is among India's most respected lifestyle companies. It has established leadership positions in the watches, jewellery and eyewear categories led by its trusted brands and differentiated customer experience.

The company was founded in 1984 as a joint-venture between TATA Group and Tamil Nadu Industrial Development Corporation (TIDCO).

Titan Ltd derives 90% of its revenues from the jewellery segment, 7% from the watches and wearables segment and balance 3% from the eyecare segment.

It is India's leading organised jewellery retailer with presence at 898 exclusive brand outlets across its brands Tanishq, Mia, Zoya and Caratlane. Company has a 7% market share in the Jewellery market.

The watches division has a total of 1,080 exclusive brand outlets and 8,000+ multi-brand outlets. It owns brands like Titan, Fastrack, Sonata, Anne Klein etc.

Titan is looking to expand its presence in Tanishq from 265 towns to 300 towns in the next couple of years. During FY23, the company expanded internationally with 6 new stores in the UAE, one store in Singapore and 2 stores in the US, comprising a total of 14 stores internationally.

Coming to the financials, net revenue for H1FY25 grew 19.2% on the back of strong festive demand in the country.

Operating profit however degrew by 2.1% during the first half with margins deteriorating substantially from 13.7% in H1FY24 to 9.8% in H1FY25.

For the year ended March 2024, Titan reported a return on equity of 32.9% and a return on capital employed of 22.7%.

Going ahead, management expects improvement in margins in the second half of FY25 driven by operational efficiencies and demand recovery.

Shares of Titan Ltd are down 4% in the last year. Also, the stock is down 0.8% in the past 1 month.

#4 Infosys

Infosys Ltd is the 2^nd largest information technology company in India.

The company provides consulting, technology, outsourcing and next-generation digital services to enable clients to execute strategies for their digital transformation.

The company's digital services are rated to be among the best in the industry. Infosys derives 57% of its revenues from digital services and balance 43% from traditional services.

The key business verticals for Infosys are the same as TCS barring life sciences and healthcare. Infosys instead has an energy, utilities, and resources division.

As present, the company caters to about 185 of Fortune 500 companies. Its clients include companies like ICICI Bank, Daimler Mercedes-Benz, HSBC Bank, Goldman Sachs, J&J, Accenture, Lockheed Martin, IBM Corporation, Deutsche Bank.

Coming to the financials, it reported a 4.4% growth in revenue in H1FY25 due to slow decision making at client's end leading to slower ramp-up of project execution.

Operating profit also grew by 4% during the first half with margins improving slightly from 25.6% in H1FY24 to 25.9% in H1FY25.

Going ahead, for FY25 they have guided for 1-3% revenue growth in constant currency terms. The company expects growth to accelerate in financial services and telecom verticals due to large deal wins. Infosys also has a positive outlook on the European markets.

Infosys reported a return on equity of at 31.8% and return on capital employed of 40% for the year ended March 2024.

Shares of Infosys are up 33% in the last one year on the back of improving operating performance.

#5 Hindustan Zinc

Incorporated in 1966, Hindustan Zinc is in Zinc-Lead and Silver business is world's 2nd largest integrated Zinc producer and Hindustan Zinc is the 3rd largest silver producer globally with an annual capacity of 800 mn tonnes.

The company has a market share of about 75% of the growing Zinc market in India with its headquarters at Zinc City, Udaipur.

Hindustan Zinc derives 75% of its revenues from the domestic market and balance 25% revenue comes from exports.

The company derives 62% revenues from Zinc, 14% from Lead, 19% from Silver, and the balance 5% from other businesses.

Hindustan Zinc has a mined metal capacity of 1.2 m tonnes per annum and runs an integrated zinc-lead-silver operation with zinc, lead, and silver smelting capacity of 913,000 tonnes p.a., 210,000 tonnes p.a. and 800 tonnes p.a., respectively.

Coming to the financials, Hindustan Zinc reported a 15.8% growth in revenue in H1FY25 due to pick up in volumes and better price realisations.

Operating profit also grew by 24.4% with margins improving from 49.7% in H1FY24 to 52.5% in H1FY25.

Going ahead, for FY25 management remains optimistic about achieving production and cost guidance despite geopolitical tensions and market volatility.

Hindustan Zinc reported a return on equity of at 55.2% and return on capital employed of 46.2% for the year ended March 2024.

Shares of Hindustan Zinc Ltd are up 66% in the last one year on the back of improving operating performance.

Conclusion

Investing in stocks with consistently high returns on capital (equity+debt) invested can provide a strategic advantage for long-term investors.

ROE and ROCE are key indicators of a company's operational efficiency and its ability to generate profitable returns from invested capital.

Companies that exhibit high ROE and ROCE tend to operate in stable, defensive sectors, offering resilience during economic fluctuations while maintaining strong growth potential.

By focusing on these high-performing businesses, investors can identify opportunities that not only promise sustainable profitability but also have the potential to outperform over the long term.

Investors should remain vigilant, conducting thorough research and keeping abreast of market trends to ensure they make informed decisions.

Remember the challenges before diving headfirst.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...