Six companies that stand out based on fat profit margins

THE point of business is not revenue, or growth. It’s profit. That’s why I like companies with fat profit margins. Obscene profits? Fine, in my book.

Once a year in this column, I feature companies that stand out for their profit margins. I consider an 18 percent margin after taxes as a shining result. Here are five stocks that I believe fit the bill.

Cisco Systems

Cisco Systems Inc. (CSCO) has achieved an after-tax profit margin of more than 20 percent for nine years in a row.

Cisco used to be an investors’ darling. It went public in 1990, soared more than a hundred-fold in value and had the highest market value of any company in the world in early 2000.

After the dot-com bubble burst in March 2000, Cisco plunged more than 80 percent in about two years. Since then, it’s been a long, slow climb back.

Today, the stock sells for 16 times earnings — historically, a typical multiple, but below average these days. (The market multiple is about 25.)

Conocophillips

I like a ton of oil and gas stocks at the moment, since I believe the industry’s revival will continue to gain momentum. Like most of its industry, Conocophillips posted losses in 2015-2017 and in 2020. But lately it boasts an after-tax margin of about 19 percent.

Presently, debt is about 34 percent of the company’s equity. And its stock price seems quite reasonable to me, at nine times earnings.

Applied Materials

Applied Materials Inc. (AMAT), based in Santa Clara, California, is the world’s largest maker of equipment used to manufacture semiconductors. It has been more stable than most competitors in its industry, with profits in 14 of the past 15 years.

I believe that the long-term trend is still for chip use to increase.

Texas Instruments

I believe the carnage in the technology sector has been overdone, and that tech is where much of the growth and innovation in the U.S. economy reside.

Texas Instruments Inc. (TXN), based in Dallas, is the world’s largest maker of analog chips. The company has steadily expanded its margins since 2012, and had nearly a 44 percent after-tax profit margin last year.

Biogen

Another stock that has taken it on the chin is Biogen Inc. (BIIB), a biotech pharmaceutical firm. It has fallen about 40 percent in the past year.

My feeling is that investors are focusing excessively on that drug, and not giving Biogen enough credit for the rest of its pharmaceutical lineup.

The record

My fat-margin recommendations from a year ago suffered a 13.7 percent loss, slightly worse than the 12.2 percent loss for the S&P 500. Magnolia Oil & Gas Corp. (MGY) performed well, but Quidel Ortho Corp. (QDEL) and T. Rowe Price Group Inc. (TROW) had large losses.

Correction: Contrary to what I reported in July, Embecta Corp. (EMDC) is not debt free. It recently had $1.6 billion in long-term debt and $10 million in short-term debt.