Earnings yield is a useful ratio for investors who have exposure to both stocks and bonds. This ratio gains an upper hand on the more commonly used P/E ratio as it facilitates comparison of stocks with fixed income securities. Interestingly, it is simply the inverse of the P/E ratio.
Earnings yield is calculated as (Annual Earnings per Share/Market Price) x 100. If other factors are constant while comparing stocks, the one with a higher earnings yield has the potential to provide comparatively greater returns.
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.
However, bearing in mind the risk-free nature of T-bills, it would be a good idea to add a risk premium to the Treasury yield while comparing it with the earnings yield of a stock or the stock market.
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 are five of the 60 stocks that made it through the screen:
La-Z-Boy Incorporated ( LZB Quick Quote LZB - Free Report) : Headquartered in Michigan, La-Z-Boy is the manufacturer of upholstered recliners and other furniture. The stock currently sports a Zacks Rank #1.The Zacks Consensus Estimate for fiscal 2021 and 2022 earnings suggests year-over-year growth of 6.5% and 17.6%, respectively. Select Medical Holdings ( SEM Quick Quote SEM - Free Report) : This Pennsylvania-based healthcare services provider offers long-term care for critically ill patients. This Zacks Rank #1 stock provides rehabilitation therapy and recovery services to patients suffering from trauma, as well as other serious conditions. The Zacks Consensus Estimate for fiscal 2020 and 2021 earnings suggests year-over-year growth of 8.9% and 24.8%, respectively. Ultra Clean Holdings, Inc. ( UCTT Quick Quote UCTT - Free Report) : Headquartered in California, Ultra Clean is a developer and supplier of critical subsystems for the semiconductor capital equipment industry. The stock currently sports a Zacks Rank #1. The Zacks Consensus Estimate for fiscal 2020 and 2021 earnings suggests year-over-year growth of 165.9% and 3.3%, respectively. 360 Finance, Inc. ( QFIN Quick Quote QFIN - Free Report) : China-based 360 Finance offers a digital consumer finance platform. This Zacks Rank #1 stock provides online consumer finance products to prime, underserved borrowers funded primarily by its funding partners. The Zacks Consensus Estimate for fiscal 2020 and 2021 earnings suggests year-over-year growth of 6.1% and 29.7%, respectively. Berry Global Group, Inc. ( BERY Quick Quote BERY - Free Report) : Based in Evansville, Berry Global produces and markets plastic packaging products. The stock currently sports a Zacks Rank #1. The Zacks Consensus Estimate for fiscal 2020 and 2021 earnings suggests year-over-year growth of 32.3% and 14.1%, respectively.
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Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance