Where to find huge returns on equity in 2018

Companies like Blackmores Limited (ASX:BKL) and Domino's Pizza Enterprises Limited (ASX:DMP) are operating in high return industries.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of the great free sources of investing data I use comes from valuation guru Aswath Damodaran.

The data covers a range of measures and multiples including average return on equity (ROE) by industry. You can find it here.

For 2017 the average return on equity globally (adjusted for Research and Development spend) was 11.2% which is a significant increase on the 8.2% in 2016.

So where should we look for huge returns in 2018?

Surprisingly, none of the industries I would think of as earning high returns, like software and healthcare products, made it into the top 10.

The table below shows three of the highest returning industries, as well as the returns for relevant local ASX companies in that industry:

Industry Average global ROE ASX listed company ASX Company ROE



Domino's Pizza Enterprises Limited (ASX:DMP)


Collins Foods Limited (ASX:CKF)


Household Products


Blackmores Limited (ASX:BKL)


BWX Limited (ASX:BWX)


Beverage (Non Alcoholic)


Coca-Cola Amatil Limited (ASX:CCL)


Source: Damodaran Online, Company annual reports

Now, if you had asked me to guess the top 5 high return industries, I would not have picked a single one of these. They are all highly competitive which is not usually conducive to above average returns.

I've even written in the past that I think Coca-Cola Amatil is a "sell" in part due to its decline in brand value in a mature market.

Household products is another industry which locally has suffered with cut-throat competition. Big players in the industry Asaleo Care Limited (ASX: AHY), McPherson's Limited (ASX: MCP) and Pental Limited (ASX: PTL) all lowered guidance in late 2017 with the common theme of pricing pressure from competition.

However there are certainly exceptions and as investors we want to find the great businesses within an industry which have etched out a niche to dominate.

Blackmores Limited (ASX: BKL) for instance stands out. The company reported an impressive return on equity in 2017 of 32% and has a history of strong returns. This is supported by being a high-volume seller with strong asset turnover (Revenue/Assets).

Similarly, although the Restaurant/Dining scene is undoubtedly tough, Domino's Pizza Enterprises Limited (ASX: DMP) has dominated with its low cost model, investment in technology and customer value creation.

What it all means

Having a high return on equity is certainly not argument enough for an investment in any of these companies. However for the likes of Blackmores and Domino's Pizza it does make a great starting point to dig further and identify potential moats or competitive advantages which may last into the future.

Motley Fool contributor Regan Pearson has no position in any of the stocks mentioned. You can follow him on Twitter @Regan_Invests. The Motley Fool Australia owns shares of and has recommended Blackmores Limited and BWX Limited. The Motley Fool Australia has recommended Coca-Cola Amatil Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »