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Add These 5 High Earnings Yield Stocks to Your Portfolio

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Earnings Yield is a simple yet effective measure to use for investors with exposure to stocks as well as bonds. The metric is an inverse of the price-to-earnings (P/E) ratio, which is usually applied to uncover undervalued stocks. However, to compare stocks with fixed income securities or the market at large, earnings yield may prove to be more appropriate.

Earnings Yield is measured as (Annual Earnings per Share/Market Price) x 100. Stocks with higher earnings yield are likely to offer healthier returns.

Earnings Yield can also be used to compare the performance of a market index with the 10-year Treasury yield. The market index is considered undervalued compared to the 10-year Treasury bill when market yield is higher than that of the bond. In such circumstances, value investors should choose to invest in the stock market rather than the 10-year Treasury bill.

However, investors must remember that T-bills are risk free, while stock investments come with a caveat. It would be a good idea to add a risk premium to the Treasury yield while comparing it with earnings yield of a stock or the overall market.

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 to generate 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.

Here are five of the nine stocks that made it through the screen:

Tech Data Corporation  is a leading provider of Internet technology products, logistics management and other value-added services. The company sports a Zacks Rank #1 and its expected EPS growth rate for the next 3–5 years is 22.8%.

United Insurance Holdings Corp. operates as a property and casualty insurance company. The company holds a Zacks Rank #2 and its expected EPS growth rate for the next 3–5 years is 20%.

VALE S.A. (VALE - Free Report) is a mining company engaged in the mining of iron ore and pellets, nickel, manganese and ferro-alloys, and potash among other metals and minerals. It operates logistics systems in Brazil, including railroads, maritime terminals and a port. It has an expected EPS growth rate of 14.6% for the next 3–5 years and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cosan Limited was established as the controlling shareholder of Cosan S.A., a Brazilian company, after the corporate restructuring of the Cosan Group in Brazil. Cosan Limited currently holds roughly 62.3% of the controlling shares of Cosan S.A., which is engaged in the cultivation, harvesting and processing of sugarcane.This Zacks Rank #1 company has an expected EPS growth rate of 16.3% for the next 3–5 years.

Volkswagen Aktiengesellschaft is the largest automobile manufacturer in Europe. The company has nine independent brands that offer a unique range of vehicles. The company’s activities focus on the automotive market and they offer products and services along the entire automotive value chain. This Zacks Rank #2 company has an expected EPS growth rate of 27.2% for the next 3–5 years.

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.

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