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Investors often use the P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. One can also use another interesting ratio. Earnings yield, expressed in percentage, is calculated as (Annual Earnings per Share/Market Price) x 100. While comparing stocks, if other factors are similar, investors can look out for stocks with higher earnings yield. This is because stocks with higher earnings yield have the potential of providing comparatively greater returns. Goodyear Tire (GT - Free Report) , Olin Corporation (OLN - Free Report) , APA Corporation (APA - Free Report) and Nutrien Limited (NTR - Free Report) are some stocks boasting high earnings yield.
Just like the case with dividend yield, firms with higher earnings yield are considered underpriced, while those with lower earnings yield are seen as overpriced. Earnings yield captures both the tangible and intangible yield of a firm, as opposed to dividend yield, which only takes into account the tangible yield.
Importantly, earnings yield can also be used to compare the performance of a market index with the 10-year Treasury yield. For instance, when the yield of the market index is more than the 10-year Treasury yield, stocks can be considered as undervalued than bonds. In this situation, investing in the stock market would be a better option for a value investor.
Earnings Yield: Simply the Inverse of P/E
Earnings yield is nothing but the reciprocal of one of the most popular valuation metrics, i.e. the P/E ratio (stock price/earnings per share). In fact, as the concept of earnings yield is already indirectly captured in the P/E ratio, earnings yield as an investment valuation metric is not as widely used as the P/E ratio.
Having said that, it should be noted that earnings yield is an important tool for investors with exposure to both stocks and bonds. In fact, with regard to this, earnings yield can be more illuminating than the traditional P/E ratio, as the former facilitates comparison of stocks with fixed-income securities.
The Winning Strategy
We have set Earnings Yield greater than 10% as our primary screening criterion but it alone cannot be used for picking stocks that have the potential of generating solid returns. So, we have added the following parameters to the screen:
Estimated EPS growth for the next 12 months greater than or equal to the S&P 500: This metric compares the 12-month forward EPS estimate with the 12-month actual EPS.
Average Daily Volume (20 Day) greater than or equal to 100,000: High trading volume implies that a stock has adequate liquidity.
Here we discuss four of the 85 stocks that qualified the screen:
Goodyear: Headquartered in Ohio, Goodyear is one of the largest tire producing companies in the world. The acquisition of Cooper Tire has strengthened the firm's leadership position in the global tire industry. Frequent product launches and restructuring programs augur well for the firm.
Goodyear has an expected earnings growth rate of 196.9% for 2021. The Zacks Consensus Estimate for the current year has been revised upward by 42 cents over the past 30 days.
Goodyear beat the Zacks Consensus Estimate for earnings in the last four quarters, with the average being 228.5%. GT currently sports a Zacks Rank #1.
Olin: Based in Clayton, Olin is a vertically-integrated global producer and distributor of chemical products.Olin’s strategic investment in the information technology project is expected to maximize cost effectiveness and efficiency. The company also remains committed to boosting shareholders' returns.
Olin has an expected earnings growth rate of 737% for 2021. The Zacks Consensus Estimate for the current year has been revised upward by $1.22 over the past 60 days.
Olin beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed once. OLN currently sports a Zacks Rank #1.
Nutrien: Canada-based Nutrien is a leading integrated provider of crop inputs and services. Nutrien should benefit from solid demand for fertilizers, especially potash, supported by strength in global agriculture markets. Cost actions and the adoption of its digital platform should also contribute to the firm’s performance.
Nutrien has an expected earnings growth rate of 212.2% for 2021. The Zacks Consensus Estimate for the current year has been revised upward by 11 cents over the past 30 days.
Nutrien beat the Zacks Consensus Estimate for earnings in three of the last four quarters, and missed once, with the average surprise being 73.5%. NTR currently sports a Zacks Rank #1.
APA: Headquartered in Houston, APA is one of the world's leading independent oil and gas explorers.APA boasts a large geographically diversified reserve base with multi-year trends in reserve replacement. The company’s high-quality drilling inventory with greater resource potential should enable it to deliver competitive per share growth.
APA has an expected earnings growth rate of 475.9% for 2021. The Zacks Consensus Estimate for the current year has been revised upward by 5 cents over the past 30 days.
APA beat the Zacks Consensus Estimate for earnings in the last four quarters, with the average being 25%. The stock currently carries a Zacks Rank #2.
You can get the rest of the stocks on this list by signing up now for a 2-week free trial to the Research Wizard stock picking and backtesting software. You can also create your own strategies and test them first before making investments.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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4 High Earnings Yield Stocks You Can Count on
Investors often use the P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. One can also use another interesting ratio. Earnings yield, expressed in percentage, is calculated as (Annual Earnings per Share/Market Price) x 100. While comparing stocks, if other factors are similar, investors can look out for stocks with higher earnings yield. This is because stocks with higher earnings yield have the potential of providing comparatively greater returns. Goodyear Tire (GT - Free Report) , Olin Corporation (OLN - Free Report) , APA Corporation (APA - Free Report) and Nutrien Limited (NTR - Free Report) are some stocks boasting high earnings yield.
Just like the case with dividend yield, firms with higher earnings yield are considered underpriced, while those with lower earnings yield are seen as overpriced. Earnings yield captures both the tangible and intangible yield of a firm, as opposed to dividend yield, which only takes into account the tangible yield.
Importantly, earnings yield can also be used to compare the performance of a market index with the 10-year Treasury yield. For instance, when the yield of the market index is more than the 10-year Treasury yield, stocks can be considered as undervalued than bonds. In this situation, investing in the stock market would be a better option for a value investor.
Earnings Yield: Simply the Inverse of P/E
Earnings yield is nothing but the reciprocal of one of the most popular valuation metrics, i.e. the P/E ratio (stock price/earnings per share). In fact, as the concept of earnings yield is already indirectly captured in the P/E ratio, earnings yield as an investment valuation metric is not as widely used as the P/E ratio.
Having said that, it should be noted that earnings yield is an important tool for investors with exposure to both stocks and bonds. In fact, with regard to this, earnings yield can be more illuminating than the traditional P/E ratio, as the former facilitates comparison of stocks with fixed-income securities.
The Winning Strategy
We have set Earnings Yield greater than 10% as our primary screening criterion but it alone cannot be used for picking stocks that have the potential of generating solid returns. So, we have added the following parameters to the screen:
Estimated EPS growth for the next 12 months greater than or equal to the S&P 500: This metric compares the 12-month forward EPS estimate with the 12-month actual EPS.
Average Daily Volume (20 Day) greater than or equal to 100,000: High trading volume implies that a stock has adequate liquidity.
Current Price greater than or equal to $5.
Buy-Rated Stocks: Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have been known to outperform peers in any type of market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our Picks
Here we discuss four of the 85 stocks that qualified the screen:
Goodyear: Headquartered in Ohio, Goodyear is one of the largest tire producing companies in the world. The acquisition of Cooper Tire has strengthened the firm's leadership position in the global tire industry. Frequent product launches and restructuring programs augur well for the firm.
Goodyear has an expected earnings growth rate of 196.9% for 2021. The Zacks Consensus Estimate for the current year has been revised upward by 42 cents over the past 30 days.
Goodyear beat the Zacks Consensus Estimate for earnings in the last four quarters, with the average being 228.5%. GT currently sports a Zacks Rank #1.
Olin: Based in Clayton, Olin is a vertically-integrated global producer and distributor of chemical products.Olin’s strategic investment in the information technology project is expected to maximize cost effectiveness and efficiency. The company also remains committed to boosting shareholders' returns.
Olin has an expected earnings growth rate of 737% for 2021. The Zacks Consensus Estimate for the current year has been revised upward by $1.22 over the past 60 days.
Olin beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed once. OLN currently sports a Zacks Rank #1.
Nutrien: Canada-based Nutrien is a leading integrated provider of crop inputs and services. Nutrien should benefit from solid demand for fertilizers, especially potash, supported by strength in global agriculture markets. Cost actions and the adoption of its digital platform should also contribute to the firm’s performance.
Nutrien has an expected earnings growth rate of 212.2% for 2021. The Zacks Consensus Estimate for the current year has been revised upward by 11 cents over the past 30 days.
Nutrien beat the Zacks Consensus Estimate for earnings in three of the last four quarters, and missed once, with the average surprise being 73.5%. NTR currently sports a Zacks Rank #1.
APA: Headquartered in Houston, APA is one of the world's leading independent oil and gas explorers.APA boasts a large geographically diversified reserve base with multi-year trends in reserve replacement. The company’s high-quality drilling inventory with greater resource potential should enable it to deliver competitive per share growth.
APA has an expected earnings growth rate of 475.9% for 2021. The Zacks Consensus Estimate for the current year has been revised upward by 5 cents over the past 30 days.
APA beat the Zacks Consensus Estimate for earnings in the last four quarters, with the average being 25%. The stock currently carries a Zacks Rank #2.
You can get the rest of the stocks on this list by signing up now for a 2-week free trial to the Research Wizard stock picking and backtesting software. You can also create your own strategies and test them first before making investments.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.