S&P 500 stocks that return more capital than their cost of capital – BofA

BofA Securities analysts listed S&P 500 (SP500) stocks that have the highest spread between return on capital and the cost of it.

Strategist Savita Subramanian wrote that the assumptions on the cost of capital have shifted from a negative real risk-free rate around the Covid pandemic to a positive one. Stock betas have also changed.

Analysts calculated the weighted average cost of capital (or WACC) based on the current equity risk premium of the S&P 500 (SP500), which is the forward earnings yield minus the 10-year real rates; the stock’s five-year beta, a 21% statutory tax rate, and the yield to maturity, based on the stock’s credit rating.

These are the stocks that can out-earn their cost of capital:

• VeriSign Inc. (VRSN) – ROC minus WACC: 1103%
• Fortinet Inc. (FTNT) – ROC minus WACC: 125%
• Otis Worldwide Corp. (OTIS) – ROC minus WACC: 103%
• Nvidia Corp. (NVDA) – ROC minus WACC: 87%
• Palo Alto Networks Inc. (PANW) – ROC minus WACC: 73%
• Apple Inc. (AAPL) – ROC minus WACC: 62%
• McKesson Corp. (MCK) – ROC minus WACC: 56%
• MasterCard Inc. (MA) – ROC minus WACC: 55%
• Airbnb Inc. Class A (ABNB) – ROC minus WACC: 52%
• Automatic Data Processing Inc. (ADP) – ROC minus WACC: 47%
• Domino’s Pizza Inc. (DPZ) – ROC minus WACC: 47%
• Altria Group Inc. (MO) – ROC minus WACC: 45%
• GoDaddy Inc. Class A (GDDY) – ROC minus WACC: 45%
• Mettler-Toledo International Inc. (MTD) – ROC minus WACC: 40%
• Booking Holdings Inc. (BKNG) – ROC minus WACC: 40%
• IDEXX Laboratories Inc. (IDXX) – ROC minus WACC: 40%
• O’Reilly Automotive Inc. (ORLY) – ROC minus WACC: 39%
• Yum! Brands Inc. (YUM) – ROC minus WACC: 38%
• AutoZone Inc. (AZO) – ROC minus WACC: 37%
• Fair Isaac Corp. (FICO) – ROC minus WACC: 34%
• Deckers Outdoor Corp. (DECK) – ROC minus WACC: 34%
• Paychex Inc. (PAYX) – ROC minus WACC: 33%
• Cencora Inc. (COR) – ROC minus WACC: 32%
• Arista Networks Inc. (ANET) – ROC minus WACC: 30%
• Applied Materials Inc. (AMAT) – ROC minus WACC: 29%
• Paycom Software Inc. (PAYC) – ROC minus WACC: 29%
• Ulta Beauty Inc. (ULTA) – ROC minus WACC: 29%
• Lululemon Athletica Inc. (LULU) – ROC minus WACC: 29%
• HP Inc. (HPQ) – ROC minus WACC: 28%
• Visa Inc. Class A (V) – ROC minus WACC: 28%
• Colgate-Palmolive Co. (CL) – ROC minus WACC: 28%
• Old Dominion Freight Line Inc. (ODFL) – ROC minus WACC: 28%
• MSCI Inc. Class A (MSCI) – ROC minus WACC: 28%
• NVR Inc. (NVR) – ROC minus WACC: 28%
• Illinois Tool Works Inc. (ITW) – ROC minus WACC: 27%
• W.W. Grainger Inc. (GWW) – ROC minus WACC: 27%
• Fastenal Co. (FAST) – ROC minus WACC: 26%
• KLA Corp. (KLAC) – ROC minus WACC: 26%
• Home Depot Inc. (HD) – ROC minus WACC: 26%
• Ameriprise Financial Inc. (AMP) – ROC minus WACC: 25%
• Lowe’s Companies Inc. (LOW) – ROC minus WACC: 25%
• Lam Research Corp. (LRCX) – ROC minus WACC: 25%
• Alphabet Inc. Class A (GOOGL) – ROC minus WACC: 25%
• Meta Platforms (META) – ROC minus WACC: 25%
• Microsoft Corp. (MSFT) – ROC minus WACC: 25%
• Cardinal Health Inc. (CAH) – ROC minus WACC: 24%
• Starbucks Corp. (SBUX) – ROC minus WACC: 24%
• A. O. Smith Corp. (AOS) – ROC minus WACC: 24%
• Verisk Analytics Inc. (VRSK) – ROC minus WACC: 23%
• NetApp Inc. (NTAP) – ROC minus WACC: 23%