Net Margin Stars – 7 Top Profitable Companies to Own
At the forefront of financial assessments is the net profit margin, often referred to as the bottom line—a company’s financial performance scorecard that illuminates how efficiently it converts sales into profits. Investors naturally gravitate towards companies that consistently generate profits.
Now, let’s unveil our focus on top profitable companies. But first, we’ll set the stage by understanding the average profitability of companies in the S&P 500 over the last 20 years and more recently. To do so, we rely on statistics provided by Yardeni Research.
According to it, the companies’ net profit margins in the S&P500 have historically been around 10%, but over the last 5-6 years, they have risen to about 12%, and at present, they are around 12.5% of revenues.
About Our Classification
We used www.macrotrends.net to get the TTM Net Margin (Trailing 12-month Net Margin). Preference was given to large corporations (top 20 stocks in S&P 500) and Net Margins that have been sustained historically.
We have to admit that “sustained historically” is a bit subjective. Moreover, we can not be sure that the data in Macrotrends is correct, but we have found it to be a reliable source of information. Without further ado here is our list:
7. JPMorgan Chase & Co (JPM)
Speaking of top profitable companies, JPMorgan (JPM) displays impressive financial performance with a current TTM Net Margin of 20.3%. Over the past seven years, the bank has consistently maintained net margins around 21%-22%, experiencing a notable spike to over 30% in 2021 during the meme-stock mania. Although it’s unlikely for such extraordinary peaks to recur, we anticipate JPM to sustain a net margin slightly above 20% in the coming quarters.
What makes JPM particularly appealing is its PE ratio of 10.65, presenting an almost 50% discount compared to the S&P 500 index’s average of 21.4. Moreover, JPM’s profit margins are 80% higher than the market averages, making its valuation remarkably attractive. As a result, JPM stands out as one of our top buy picks, and we even consider it a strong contender for the best buy pick despite its current ranking at #7 on our list.
6. Apple Inc. (AAPL)
Current TTM Net Margins for APPL are at 25,3%, which have varied between 20% and 28% in the last ten years. But the average has been around 23% for the period. We don’t know what to expect from AAPL, but at 25% Net Margin versus the 12,5% average for the S&P 500, the stock may be worth a P/E Ratio twice as high as the S&P 500.
That ratio is only 40% higher (30,5 P/E for APPL vs 21,4 for S&P 500). Considering Net Margins has never been below 20% historically and is now nearly 100% more than most other companies, we believe AAPL is cheap. Not really cheap, but certainly NOT expensive. We certainly are willing to buy the stock at current valuations.
5. Meta Platforms, Inc. (META)
META‘s current TTM margins are at 23.4%. We will admit that historically, they are not clear-cut nominations. However, we believe the relevant period should be starting from 2014.
Historically, their net margins have been as high as 40%, and given their cost-cutting measures over the last 12 months, we believe that 20-25% net profit margins are what is to be conservatively expected from the company in 2024. The P/E ratio of META is only 60% higher than S&P 500 (34,7 vs 21,4), while net margins are 100% higher. We consider META’s current valuation to be very attractive.
4. NVIDIA Corporation (NVDA)
NVDA has TTM net margins of 42%; however, over the long run, they have been closer to 25%. Given that the stock trades at nearly 80 P/E ratio (300% higher than the 500), it will have to keep its margins at 40% or higher and grow its revenues much higher than the broader markets. It is essential to say that we are NOT necessarily bearish on NVDA; the company may face a bright future. We only say that the valuation is not conservative enough for us to buy the stock.
3. Microsoft Corporation (MSFT)
MSFT currently has a TTM net margin of 35%. Historically, that margin has fluctuated between 15% and 40% while averaging a bit higher than 25%. We expect MSFT to maintain those mid-30 % net margins for 2024, roughly 200% more than most companies in the S&P500. MSFT trades a 39,2 P/E ratio, only 85% more than the broader markets. That certainly would make it look cheap, at least to us.
2. Mastercard Incorporated (MA)
MA has TTM net margins of nearly 45%, and their 10-year average is closer to 40%, which is a net margin rate 250% higher than the over-average. At the same time, the company’s P/E ratio is 38, or only 80% higher than the S&P 500! MA is not trading at a discount like JPM, but its valuation looks very attractive. We do have that ticker on our BUY list.
1. Visa Inc. (V)
Meet the standout VISA, the undisputed champion among top profitable companies! V has maintained an impressive average of around 40% net margins over the past decade and an even more remarkable 50% over the previous six years – a feat that surpasses most other companies in the S&P 500 by nearly 300%!
As for Visa’s valuation, it’s trading at a 31 P/E ratio, presenting only a 45% premium compared to market averages. It’s no wonder we are eagerly considering adding this stock to our portfolio!