Opinion – From Grain to Grain: Most companies on the Ibovespa have a higher ROE than Selic; discover the best

A few weeks ago I wrote an article mentioning that Quality is a very important factor in selecting good stocks for investment. One of the criteria for evaluating Quality is profitability (ROE). Following requests from readers, I did a survey of how Ibovespa companies qualify in this criterion and which ones are the best classified.

As I mentioned in my article, for profitability, MSCI considers the profitability of companies as measured by ROE (Return on Equity).

In translation, ROE represents the company’s Return on Equity (PL). The equity of a company is the portion of the balance sheet attributed to the shareholder. This index is calculated by the ratio between the company’s net income and its PL.

Although it is an accounting measure, it is closely monitored to assess the profitability of the companies’ results for the shareholder.

So, using Bloomberg, I did three surveys.

First, I surveyed which companies in the last twelve months had a better ROE than the current Selic. Next, which companies ranked highest by average ROE over the last five years. Finally, which companies have the highest expected ROEs for the next twelve months.

We know that the Selic rate is currently at 13.25% per year. This interest level is very attractive for investment. Thus, if a company presents profitability above this level, it means that its results are interesting.

Using the earnings of the last twelve months, 50 of the 92 Ibovespa shares showed a ROE greater than 13.25%.

To avoid the bias of just one year, I captured on Bloomberg what was the average profitability of companies in the last 5 years.

Using this criterion, it appears that half of the companies presented a ROE higher than the current Selic, in the last five years. It is important to remember that the average Selic rate for the last 5 years was less than 6% per year, that is, less than half of the current Selic rate.

When we look for companies with an average ROE above the average Selic rate over the last five years, we find that 75% of companies beat the basic interest rate.

The Ibovespa is criticized for being a poorly weighted index, but, with these numbers, it is undeniable to say that it has companies of excellent quality in its constitution.

Let’s find out who ranked highest in each survey.

The five companies (stocks) with the best ROE in the last twelve months were: BRKM5, MRFG3, SUZB3, BRAP4 and ASAI3.

In the average ROEs of the last five years, the five most prominent companies were: BBSE3, CSNA3, MRFG3, HAPV3 and VALE3.

When measuring expected profitability for the next twelve months, the five stocks with the highest ROE are: BBSE3, SLCE3, RRRP3, CSNA3 and PETR4.

Please understand that this does not mean that these stocks are cheap, only that the company has one of the Quality criteria well ranked in relation to the basic interest rate.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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