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5 High Earnings Yield Value Picks to Ride Out Market Volatility
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Since the beginning of this year, Wall Street has been suffering from extreme volatility amid high inflation and worries over the war in Ukraine. The Russia-Ukraine war is not particularly raising recession risks in the United States but is increasing upward pressure on inflation. Inflation is at a 40-year high in the United States. In order to combat skyrocketing inflation, the Fed raised the benchmark interest rate by 25 basis points in March for the first time in three years. The Fed is leaning toward a 50-basis point rate hike at the next meeting on May 3-4 and is likely to begin reducing the record-high balance sheet. In addition to inflation and geopolitical tensions, the rising COVID-19 cases in China have also spooked investors. Market volatility is here to stay.
In this hair-trigger market, value investing could be one of the most effective investment approaches. The strategy basically seeks to profit from investing in fundamentally strong stocks that appear to be trading at a discount to their intrinsic values. Value investors benefit from identifying and buying stocks that are underestimated by the equity market and are thus trading below their true value, and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect actual fundamentals.
While the P/E ratio is generally regarded as one of the most popular valuation metrics, there’s another interesting ratio that you can consider for ferreting out attractively valued stocks. And that is earnings yield. Consider unlocking your portfolio value with these five high earnings yield stocks — Centennial Resource Development, Inc. , Nutrien Limited (NTR - Free Report) , Teck Resources Limited (TECK - Free Report) , Pilgrim's Pride Corporation (PPC - Free Report) and Univar Solutions Inc. .
Earnings Yield: Reciprocal of P/E ratio
Earnings yield is useful for investors concerned about the rate of return on investment. This metric, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price — the inverse of the P/E ratio. 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.
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 the comparison of stocks with fixed-income securities. 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.
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 Days) greater than or equal to 100,000: High trading volume implies that a stock has adequate liquidity.
Here we discuss five of the 134 stocks that qualified the screen:
Centennial Resource: Centennial is an exploration and production company that is focused on the Permian Basin. Its properties consist of acreage blocks, primarily in Reeves County, West Texas and Lea County, New Mexico. For 2022, Centennial projects net average daily production at 61,500-67,500 barrels of oil equivalent per day (Boe/d), indicating an increase from 60,939 Boe/d in 2021. The company also announced a $350-million stock buyback program when it reported fourth-quarter results.
CDEV topped earnings estimates in three out of the last four quarters while missing once, with the average being 8.1%. The Zacks Consensus Estimate for 2022 earnings and sales implies year-over-year growth of 191.3% and 32.2%, respectively. The stock sports a Zacks Rank #1 and has a VGM Score of B.
Nutrien: Canada-based Nutrien is a leading provider of crop inputs and services. The company is benefiting from solid demand and higher prices for crop nutrients on strength in the global agriculture markets. NTR is also gaining from acquisitions, cost efficiency and increased adoption of the digital platform. The company also continues to expand its footprint in Brazil through acquisitions, including Tec Agro.
Nutrien currently sports a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for 2022 earnings and sales implies year-over-year growth of 109% and 30%, respectively. NTR topped earnings estimates in three out of the last four quarters while missing once, with the average being 60.3%.
Teck Resources: Canada-based Teck Resources is a diversified resource company committed to mining and mineral development, with business units focused on steelmaking coal, copper, zinc, and energy. TECK is well positioned to benefit from its portfolio of world-class assets in stable jurisdictions, ongoing cost reduction program and innovation-driven efficiency program, RACE21.
Currently, Teck Resources sports a Zacks Rank #1 and has a VGM Score of B. The company topped earnings estimates in three out of the last four quarters while missing once, with the average being 13%. The Zacks Consensus Estimate for 2022 earnings and sales implies year-over-year growth of 60% and 32%, respectively.
Pilgrim’s Pride: Headquartered in Greeley, Pilgrim’s Pride is engaged in the processing, production, marketing, and distribution of frozen, fresh as well as value-added chicken products. The company’s customer-centric approach and deployment of advanced technologies have propelled it to come up with unique offerings that provide competitive advantages. The acquisition of Kerry Consumer Foods’ Meats and Meals business in the U.K. and Ireland has expanded PPC’s European foothold.
Pilgrim’s Pride surpassed estimates in three of the last four quarters and missed once, with the average being 25%. The Zacks Consensus Estimate for its 2022 earnings has been revised upward by 5 cents over the past seven days to $2.78 per share, implying year-over-year growth of 22%. PPC has a long-term expected EPS growth of 10.2%. The stock currently carries a Zacks Rank #2 and a VGM Score of A.
Univar: Illinois-based Univar is benefiting from market share gains, operational execution, cost minimization and a robust liquidity position. It is well placed to gain from consistent market expansion and acquisitions. The acquisition of Nexeo Solutions also enhanced UNVR’s capabilities and accelerated its ability to create a significant value for customers, supplier partners, employees as well as shareholders. Univar is also benefiting from chemical price inflation, which is contributing to top-line growth.
Univar has an expected earnings growth rate of 18.5% for the current year. The consensus estimate for earnings for the current year for UNVR has been revised 34.2% upward over the past 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters, with an average of 31%. The stock sports a Zacks Rank #1 and has a VGM Score of B.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
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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5 High Earnings Yield Value Picks to Ride Out Market Volatility
Since the beginning of this year, Wall Street has been suffering from extreme volatility amid high inflation and worries over the war in Ukraine. The Russia-Ukraine war is not particularly raising recession risks in the United States but is increasing upward pressure on inflation. Inflation is at a 40-year high in the United States. In order to combat skyrocketing inflation, the Fed raised the benchmark interest rate by 25 basis points in March for the first time in three years. The Fed is leaning toward a 50-basis point rate hike at the next meeting on May 3-4 and is likely to begin reducing the record-high balance sheet. In addition to inflation and geopolitical tensions, the rising COVID-19 cases in China have also spooked investors. Market volatility is here to stay.
In this hair-trigger market, value investing could be one of the most effective investment approaches. The strategy basically seeks to profit from investing in fundamentally strong stocks that appear to be trading at a discount to their intrinsic values. Value investors benefit from identifying and buying stocks that are underestimated by the equity market and are thus trading below their true value, and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect actual fundamentals.
While the P/E ratio is generally regarded as one of the most popular valuation metrics, there’s another interesting ratio that you can consider for ferreting out attractively valued stocks. And that is earnings yield. Consider unlocking your portfolio value with these five high earnings yield stocks — Centennial Resource Development, Inc. , Nutrien Limited (NTR - Free Report) , Teck Resources Limited (TECK - Free Report) , Pilgrim's Pride Corporation (PPC - Free Report) and Univar Solutions Inc. .
Earnings Yield: Reciprocal of P/E ratio
Earnings yield is useful for investors concerned about the rate of return on investment. This metric, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price — the inverse of the P/E ratio. 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.
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 the comparison of stocks with fixed-income securities. 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.
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 Days) 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 five of the 134 stocks that qualified the screen:
Centennial Resource: Centennial is an exploration and production company that is focused on the Permian Basin. Its properties consist of acreage blocks, primarily in Reeves County, West Texas and Lea County, New Mexico. For 2022, Centennial projects net average daily production at 61,500-67,500 barrels of oil equivalent per day (Boe/d), indicating an increase from 60,939 Boe/d in 2021. The company also announced a $350-million stock buyback program when it reported fourth-quarter results.
CDEV topped earnings estimates in three out of the last four quarters while missing once, with the average being 8.1%. The Zacks Consensus Estimate for 2022 earnings and sales implies year-over-year growth of 191.3% and 32.2%, respectively. The stock sports a Zacks Rank #1 and has a VGM Score of B.
Nutrien: Canada-based Nutrien is a leading provider of crop inputs and services. The company is benefiting from solid demand and higher prices for crop nutrients on strength in the global agriculture markets. NTR is also gaining from acquisitions, cost efficiency and increased adoption of the digital platform. The company also continues to expand its footprint in Brazil through acquisitions, including Tec Agro.
Nutrien currently sports a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for 2022 earnings and sales implies year-over-year growth of 109% and 30%, respectively. NTR topped earnings estimates in three out of the last four quarters while missing once, with the average being 60.3%.
Teck Resources: Canada-based Teck Resources is a diversified resource company committed to mining and mineral development, with business units focused on steelmaking coal, copper, zinc, and energy. TECK is well positioned to benefit from its portfolio of world-class assets in stable jurisdictions, ongoing cost reduction program and innovation-driven efficiency program, RACE21.
Currently, Teck Resources sports a Zacks Rank #1 and has a VGM Score of B. The company topped earnings estimates in three out of the last four quarters while missing once, with the average being 13%. The Zacks Consensus Estimate for 2022 earnings and sales implies year-over-year growth of 60% and 32%, respectively.
Pilgrim’s Pride: Headquartered in Greeley, Pilgrim’s Pride is engaged in the processing, production, marketing, and distribution of frozen, fresh as well as value-added chicken products. The company’s customer-centric approach and deployment of advanced technologies have propelled it to come up with unique offerings that provide competitive advantages. The acquisition of Kerry Consumer Foods’ Meats and Meals business in the U.K. and Ireland has expanded PPC’s European foothold.
Pilgrim’s Pride surpassed estimates in three of the last four quarters and missed once, with the average being 25%. The Zacks Consensus Estimate for its 2022 earnings has been revised upward by 5 cents over the past seven days to $2.78 per share, implying year-over-year growth of 22%. PPC has a long-term expected EPS growth of 10.2%. The stock currently carries a Zacks Rank #2 and a VGM Score of A.
Univar: Illinois-based Univar is benefiting from market share gains, operational execution, cost minimization and a robust liquidity position. It is well placed to gain from consistent market expansion and acquisitions. The acquisition of Nexeo Solutions also enhanced UNVR’s capabilities and accelerated its ability to create a significant value for customers, supplier partners, employees as well as shareholders. Univar is also benefiting from chemical price inflation, which is contributing to top-line growth.
Univar has an expected earnings growth rate of 18.5% for the current year. The consensus estimate for earnings for the current year for UNVR has been revised 34.2% upward over the past 60 days. The company beat the Zacks Consensus Estimate in each of the trailing four quarters, with an average of 31%. The stock sports a Zacks Rank #1 and has a VGM Score of B.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
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