For Immediate Release
Chicago, IL – October 28, 2020 – Stocks in this week’s article are Winnebago Industries, Inc. (
WGO Quick Quote WGO - Free Report) , Meritage Homes Corporation ( MTH Quick Quote MTH - Free Report) , Pampa Energía S.A. ( PAM Quick Quote PAM - Free Report) , Quest Diagnostics Incorporated ( DGX Quick Quote DGX - Free Report) and The Michaels Companies, Inc. . 5 High Earnings Yield Stocks That Make Attractive Bets
Investors often use P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. However, 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 the one with higher earnings yield. This is because stocks with earnings yield have the potential of providing comparatively greater returns.
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 the firm as opposed to dividend yield, which only takes into account the tangible yield. The ratio of dividend yield to earnings yield indicates the proportion of earnings directly distributed in the form of dividend payout.
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). Thus, a firm having a P/E ratio of 10.2 will logically have an earnings yield of 9.8% (100/10.2). 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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1088510/5-high-earnings-yield-stocks-that-make-attractive-bets 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. About Screen of the Week
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