Studies have found that investing in profitable stocks can generate above-average returns. Profit margins can tell us how well a management team is running a business. It represents the percentage of sales that has turned into profits. While there are a few ways to look at net profits, I prefer net margin since it shows a company’s bottom line after other expenses have been taken out of revenue.
As we’ve seen over the last couple of quarters, companies are generating billions in sales. But if the sales aren’t turning into profits, then a company may not be worth buying. So, I ran a screen for technology stocks rated a Buy in our proprietary POWR Ratings systems with a net profit margin of 20% or higher. The results included top stocks such as Cadence Design Systems, Inc. (CDNS), KLA Corporation (KLAC), and Skyworks Solutions, Inc. (SWKS).