Updated on December 17th, 2024 by Bob Ciura
Spreadsheet data updated daily
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.
Generally, stocks generating the highest ROIC are doing the best job of allocating their investors’ capital. With this in mind, the following section ranks the 10 stocks with the highest ROIC.
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: Yum Brands Inc. (YUM)
- 5-year annual expected returns: 11.2%
- Return on invested capital: 44.6%
Yum Brands owns the KFC, Pizza Hut, Taco Bell, and The Habit Restaurants chains. It is present in more than 155 countries and has more than 59,000 restaurants, 60% of which are located abroad. KFC generates about half of the total revenue and operating profit of the company.
In early November, Yum Brands reported (11/5/24) results for Q3-2024. It grew its sales only 1% over last year’s quarter, as 5% growth of store count was almost offset by a -5% decline in same-store sales. KFC and Pizza Hut incurred pressure in same-store sales amid tough comparisons.
Digital sales were over $8 billion and exceeded 50% of total sales. Earnings per-share dipped -5%, from $1.44 to $1.37, and missed the analysts’ consensus by $0.04, mostly due to a higher tax rate.
Yum Brands keeps opening new stores at a fast pace this year and still expects 8% growth of operating income.
Click here to download our most recent Sure Analysis report on YUM (preview of page 1 of 3 shown below):
High ROIC Stock #9: APA Corp. (APA)
- 5-year annual expected returns: 11.4%
- Return on invested capital: 21.7%
APA explores for and produces crude oil, natural gas and natural gas liquids (NGLs) in the U.S., Egypt and the North Sea. In 2023, APA produced about 331,000 barrels of oil equivalent per day (excluding non-controlling interest). In this period, oil, natural gas, and NGLs comprised 81%, 12% and 7% of the total revenue of the company, respectively.
On April 1st, 2024, APA acquired Callon Petroleum (CPE) in an all-stock deal valued at $4.5 billion (incl. debt). APA issued ~70 million shares for this deal. It also expects to grow its output ~50% and reap great synergies in the Permian Basin, where Callon Petroleum is present.
In early November, APA reported (11/6/24) financial results for the third quarter of 2024. Its production grew 13% over the prior year’s quarter thanks to the acquisition of Callon Petroleum but the average realized price of oil decreased and the price of natural gas plunged amid high inventories.
As a result, earnings-per-share decreased -25%, from $1.33 to $1.00, though they exceeded the analysts’ consensus by $0.01.
Click here to download our most recent Sure Analysis report on APA (preview of page 1 of 3 shown below):
High ROIC Stock #8: Qualcomm Inc. (QCOM)
- 5-year annual expected returns: 12.4%
- Return on invested capital: 25.9%
Qualcomm develops and sells integrated circuits for use in voice and data communications. The chip maker receives royalty payments for its patents used in devices that are on 3G, 4G, and 5G networks. Qualcomm has annual sales of ~$38 billion.
On November 6th, 2024, Qualcomm reported results for the fourth quarter and fiscal year 2024 for the period ending September 29th, 2024. For the quarter, revenue increased 18.1% to $10.24 billion, which was $310 million ahead of estimates.
Adjusted earnings-per-share of $2.69 compared very favorably to $2.02 in the previous year and was $0.12 more than expected. For the year, revenue grew 9% to just under $39 billion while adjusted earnings-per-share of $10.22 compared to $8.43 in the prior year.
Click here to download our most recent Sure Analysis report on QCOM (preview of page 1 of 3 shown below):
High ROIC Stock #7: Applied Materials Inc. (AMAT)
- 5-year annual expected returns: 12.4%
- Return on invested capital: 30.2%
Applied Materials is a semiconductor manufacturer that generates roughly $27 billion in annual revenue.
Applied Materials posted fourth quarter and full-year earnings on November 14th, 2024, and results were better than expected on both the top and bottom lines.
Adjusted earnings-per-share for the quarter came to $2.32, which was 13 cents ahead of expectations. Revenue was $7.05 billion, up about 5% year-over-year, and beating estimates by $80 million.
On an adjusted basis, gross margin came to 47.5% of revenue, and operating income was $2.06 billion, or 29.3% of net revenue. The company generated $2.58 billion in cash from operations, and distributed $1.77 billion to shareholders. That included $1.44 billion in share repurchases, and $329 million in dividends.
Click here to download our most recent Sure Analysis report on AMAT (preview of page 1 of 3 shown below):
High ROIC Stock #6: MarketAxess Holdings (MKTX)
- 5-year annual expected returns: 14.1%
- Return on invested capital: 21.4%
MarketAxess Holdings is a fintech company operating an electronic trading platform for fixed income, such as corporate bonds, using patented trading technology.
The products traded on the platform are U.S. high-grade corporate bonds, emerging market bonds, U.S. crossover and high yield bonds, Eurobonds, U.S. agency bonds, municipal bonds, and others.
MarketAxess reported third quarter results on November 6th, 2024. Revenues for the quarter increased 20% year-over-year to $207 million. Operating income rose 30% to $87 million, and diluted EPS of $1.90 also increased 30% from the same prior year period.
The company’s estimated U.S. high-grade market share amounted to 19.5% for the quarter, down 50 basis points from the prior year’s market share estimates. Its estimated high-yield market share also declined 310 basis points from 16.1% in the third quarter of 2023 to 13.0% in Q3 2024.
Click here to download our most recent Sure Analysis report on MKTX (preview of page 1 of 3 shown below):
High ROIC Stock #5: Eli Lilly & Co. (LLY)
- 5-year annual expected returns: 14.3%
- Return on invested capital: 21.5%
Eli Lilly develops, manufactures, and sells pharmaceuticals around the world, and has about 35,000 employees globally. Eli Lilly should produce at least $45 billion of revenue in 2024.
On October 30th, 2024, Eli Lilly reported third quarter results for the period ending September 30th, 2024. For the quarter, revenue grew 20.5% to $11.4 billion, but this was $680 million less than expected.
Adjusted earnings-per share
of $1.18 compared very favorably to adjusted earnings-per-share of $0.10 in the prior year, but this was $0.29 below estimates.
Volumes companywide were up 15% for the quarter and pricing added 6%, with currency acting as a 1% headwind to results. U.S. revenue grew 42% to $7.84 billion, as volume was up 27% and higher prices added 15%. International revenues fell 12% to $3.63 billion as volumes fell 10%. Pricing was unchanged.
Revenue for Mounjaro, which helps patients with weight management and is the company’s top gross product, totaled $3.11 billion, compared to $1.41 billion a year ago.
Click here to download our most recent Sure Analysis report on LLY (preview of page 1 of 3 shown below):
High ROIC Stock #4: Nike Inc. (NKE)
- 5-year annual expected returns: 14.5%
- Return on invested capital: 23.0%
Nike is the world’s largest athletic footwear, apparel and equipment maker. The namesake is one of the most valuable brands in the world. Nike’s offerings focus on six categories: running, basketball, the Jordan brand, football (soccer), training, and sportswear. Nike also owns Converse.
In early October, Nike released (10/1/24) results for the first quarter of fiscal 2025 (Nike’s fiscal year ends on May 31st). Sales and direct sales decreased -10% and -13%, respectively, vs. the prior year’s quarter.
Digital sales declined -20%. Gross margin expanded from 44.2% to 45.4% thanks to price hikes and lower input costs but earnings-per-share declined -26%, from $0.95 to $0.70, due to the sharp decrease in sales.
It still expects a mid-single digit decrease in revenues in fiscal 2025 due to challenging macroeconomic conditions but it also expects to resort to deep discounts in order to reduce inventory from high levels.
Click here to download our most recent Sure Analysis report on NKE (preview of page 1 of 3 shown below):
High ROIC Stock #3: Meta Platforms Inc. (META)
- 5-year annual expected returns: 14.5%
- Return on invested capital: 31.9%
Meta Platforms, previously known as Facebook, is multinational technology conglomerate known for its social media platforms, including Facebook, Instagram, and WhatsApp. It has also invested in emerging technologies such as augmented reality (AR) and virtual reality (VR) through its Oculus subsidiary.
With nearly 4 billion people logging into at least one of Meta’ platforms every month, the company attracts nearly 20% of all global advertising revenue, second only to Alphabet (GOOGL), which commands a substantial 40% market share. Meta Platforms generates nearly $160 billion in annual revenues, and is headquartered in Menlo Park, California.
On October 30th, 2024, Meta Platforms reported its Q3 results for the period ending June 30th, 2024. For the quarter, the company posted revenues of $40.6 billion, marking a strong growth of 19% compared to the previous year. Revenue growth was driven by increased user activity, growth in ad impressions, and higher ad pricing.
Click here to download our most recent Sure Analysis report on META (preview of page 1 of 3 shown below):
High ROIC Stock #2: EOG Resources (EOG)
- 5-year annual expected returns: 15.7%
- Return on invested capital: 22.0%
EOG Resources is a crude oil and natural gas company headquartered in Houston, Texas. It is principally engaged in the exploration, development, and production of crude oil and natural gas with reserves in the United States, Canada, Trinidad, and China.
EOG has three operating segments split by geographical areas: Crude oil, Natural Gas, and Natural Gas Liquids (NGL). Crude oil is the largest segment, which accounts for 79% of revenue.
On November 7th, 2024, EOG Resources reported its Q3 2024 results. For the quarter, EOG recorded total revenue of $5.97 billion, a slight decrease from $6.03 billion in the second quarter and down from $6.21 billion in Q3 2023.
Net income for the quarter was $1.67 billion, translating to earnings per share of $2.95, which was consistent with Q2 2024. The company generated a solid operating cash flow of $3.0 billion, a significant increase from $2.28 billion in Q2 2023, and produced $1.5 billion in free cash flow.
Total expenditure for the quarter were $1.57 billion. EOG’s cash and cash equivalents rose to $6.12 billion, and the company sustained a low debt-to-total capitalization ratio of 11.3%.
Click here to download our most recent Sure Analysis report on EOG (preview of page 1 of 3 shown below):
High ROIC Stock #1: Alphabet Inc. (GOOG)(GOOGL)
- 5-year annual expected returns: 16.4%
- Return on invested capital: 31.0%
Alphabet is a technology conglomerate that operates several businesses such as Google search, Android, Chrome, YouTube, Nest, Gmail, Maps, and many more. Alphabet is a leader in many of the areas of technology that it operates. On October 29th, 2024, Alphabet reported third quarter results for the period ending September 30th, 2024.
As had been the case for several quarters, the company delivered better than expected results. Revenue grew 15.1% to $88.3 billion for the period and beat analysts’ estimates by $2.05 billion. Adjusted earnings-per-share of $2.12 compared very favorably to $1.55 in the prior year and was $0.27 above expectations.
Once again, nearly every aspect of Alphabet’s business performed well during the quarter. Revenue for Google Search, the largest contributor to results, increased more than 12% to $49.4 billion. YouTube ads grew 12.2% to $8.9 billion while Google Network declined 1.6% to $7.5 billion. Google subscriptions, platforms, and devices were up almost 28% to $10.7 billion.
Click here to download our most recent Sure Analysis report on GOOGL (preview of page 1 of 3 shown below):
Final Thoughts
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.
Further Reading
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.