The S&P 500 soared 20.8% in the first nine months of the year, and historically, any gain above 20% in the first three quarters leads to an increase of 2.1%, on average, in the year’s final quarter, according to the Dow Jones Market Data.

The S&P 500 is off to a solid start in the fourth quarter, with the benchmark for large-cap companies finishing at its 47th record close this year on Friday. The S&P 500 has scaled northward for the sixth week, banking on the Federal Reserve’s jumbo interest rate cut and a resilient U.S. economy that squashed recession fearmongering.

Therefore, investors should take advantage of the index’s upward trend by betting on profitable stocks and avoiding unprofitable ones. Profitable stocks yield strong returns after meeting all operating and non-operating expenses. Here, we have used the concept of accounting ratios to gauge a company’s profitability. We selected the most successful and commonly used profitability ratio to assess a company’s performance.

To that end, NVIDIA Corporation NVDA, Insulet Corporation PODD and Monolithic Power Systems, Inc. MPWR have been selected as the top picks with a high net income ratio.

Net Income Ratio

The net income ratio gives us the exact profitability level of a company. It reflects the percentage of net income to total sales revenues. Using the net income ratio, one can determine a firm’s effectiveness in meeting operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.

Screening Parameters Using Research Wizard:

The net income ratio is not the only indicator of future winners. So, we have added a few more criteria to arrive at a winning strategy.

Zacks Rank Less than or equal to 2: Whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

Trailing 12-Month Sales and Net Income Growth Higher than X Industry: Stocks that have witnessed higher-than-industry sales and net income growth in the past 12 months are positioned to perform well.

Trailing 12-Month Net Income Ratio Higher than X Industry: A high net income ratio indicates a company’s solid profitability.

Percentage Rating Strong Buy greater than 70: This indicates that 70% of the current broker recommendations for the stock are Strong Buy.

These few parameters have narrowed the universe of more than 7,685 stocks to only 38.