By Paul R. La Monica
A company's stock valuation, sales and earnings -- investors pay attention to them all. But gross profit margins might be one of the better ways to pick a winning name.
Trivariate Research's Adam Parker is a fan of focusing on gross margins, which are calculated by taking a company's revenue and subtracting cost of sales and dividing that by revenue.
Companies with relatively few expenses and asset-light business models tend to have higher gross profits, which eventually can show up in the bottom line as net income.
"The long-term trend of high gross margins is certainly correlated to the higher valuation for the S&P 500," Parker writes, adding that analysts and investors "should spend meaningful time on their views of the gross margin trajectory of individual stocks...over the coming quarters."
Parker, Trivariate's founder, and his team note that gross margins haven't moved that much for the median stock in the S&P 500, mainly because of tariffs and less pricing power. But there are companies that Parker points out have benefited from lower expenses and reduced wage pressures.
With all of that in mind, Barron's used FactSet to screen for companies with above-average gross margins -- higher than 50% -- that also reported higher gross margins in their most recent fiscal year compared to a year earlier.
Not surprisingly, several tech companies -- known for having lofty profit margins -- made the cut. Among the more prominent: Alphabet, Amazon, IBM, Palantir, Broadcom, Analog Devices, Micron, and Workday.
But a hefty number of non-tech companies popped up, too, a testament to them keeping costs down and perhaps enjoying a little pricing power in these times of persistent inflation.
Some of those names: Royal Caribbean, T-Mobile, shopping center owners Simon Property Group and Kimco, Hasbro, Monster Beverage, DoorDash, FedEx and UPS, Duke Energy, Exelon, FirstEnergy, and gold miner Newmont.
Finally, several healthcare stocks made the list despite being in a sector that has taken it on the chin this year. Nine intriguing ones are drugmakers Eli Lilly, Merck, and Pfizer; biotechs Amgen and Gilead Sciences; Zoetis, an animal-health company; and medical equipment firms Boston Scientific, Stryker, and Zimmer Biomet.
Given the push, though, by both the Trump administration and Democrats to lower medical costs, it will be interesting to see if healthcare companies can hang on to their lofty margins.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
By Paul R. La Monica
A company's stock valuation, sales and earnings -- investors pay attention to them all. But gross profit margins might be one of the better ways to pick a winning name.
Trivariate Research's Adam Parker is a fan of focusing on gross margins, which are calculated by taking a company's revenue and subtracting cost of sales and dividing that by revenue.
Companies with relatively few expenses and asset-light business models tend to have higher gross profits, which eventually can show up in the bottom line as net income.
"The long-term trend of high gross margins is certainly correlated to the higher valuation for the S&P 500," Parker writes, adding that analysts and investors "should spend meaningful time on their views of the gross margin trajectory of individual stocks...over the coming quarters."
Parker, Trivariate's founder, and his team note that gross margins haven't moved that much for the median stock in the S&P 500, mainly because of tariffs and less pricing power. But there are companies that Parker points out have benefited from lower expenses and reduced wage pressures.
With all of that in mind, Barron's used FactSet to screen for companies with above-average gross margins -- higher than 50% -- that also reported higher gross margins in their most recent fiscal year compared to a year earlier.
Not surprisingly, several tech companies -- known for having lofty profit margins -- made the cut. Among the more prominent: Alphabet, Amazon, IBM, Palantir, Broadcom, Analog Devices, Micron, and Workday.
But a hefty number of non-tech companies popped up, too, a testament to them keeping costs down and perhaps enjoying a little pricing power in these times of persistent inflation.
Some of those names: Royal Caribbean, T-Mobile, shopping center owners Simon Property Group and Kimco, Hasbro, Monster Beverage, DoorDash, FedEx and UPS, Duke Energy, Exelon, FirstEnergy, and gold miner Newmont.
Finally, several healthcare stocks made the list despite being in a sector that has taken it on the chin this year. Nine intriguing ones are drugmakers Eli Lilly, Merck, and Pfizer; biotechs Amgen and Gilead Sciences; Zoetis, an animal-health company; and medical equipment firms Boston Scientific, Stryker, and Zimmer Biomet.
Given the push, though, by both the Trump administration and Democrats to lower medical costs, it will be interesting to see if healthcare companies can hang on to their lofty margins.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 17, 2025 16:23 ET (21:23 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments