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Want to Bet on High Earnings Yield Stocks? Check Out These

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Investors often use P/E ratio and other valuation metrics while picking stocks that are undervalued. However, it is difficult to use the P/E ratio to compare stocks with fixed income securities. This is where its inverse — Earnings Yield — comes handy. Other things remaining constant, a stock with a higher earnings yield has the potential of providing comparatively greater returns.

Earnings Yield is calculated as (Annual Earnings per Share/Market Price) x 100.

Earnings Yield can be used to compare a stock with other stocks or fixed income securities. It is also used to compare the performance of a market index with the 10-year Treasury yield.

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 scenario, investing in the stock market would be a better option for a value investor.

However, you need to keep in mind that T-bills are risk free and investing in stocks always comes with a caveat. Hence, 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 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 selecting 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 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 $5.00.

Zacks Rank less than 3: Stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy) generally outperform their 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 four of the 56 stocks that made it through the screen. Each of these stocks sports a Zacks Rank #1.

Kontoor Brands, Inc. (KTB - Free Report) :This Greensboro-based firm is a global lifestyle apparel company. The Zacks Consensus Estimate for 2021 earnings and sales suggests year-over-year growth of 42.6% and 15.5%, respectively.It has an expected EPS growth rate of 4% for the next three-five years. The company surpassed earnings estimates in each of the trailing four quarters, with an average beat of 42.1%.

Camping World Holdings, Inc. (CWH - Free Report) : This Lincolnshire-based company is a provider of services, protection plans, products and resources for recreational vehicle enthusiasts. The Zacks Consensus Estimate for 2020 earnings and sales suggests year-over-year growth of 1,006.1% and 9.6%, respectively. It has an expected EPS growth rate of 34.7% for the next three-five years. The company surpassed earnings estimates in three of the trailing four quarters, and missed once, with an average surprise of 70.5%.

General Motors (GM - Free Report) : This Detroit based company is one of the leading automakers in the world. The Zacks Consensus Estimate for 2021 earnings and sales suggests year-over-year growth of 43.3% and 10.3%, respectively.It has an expected EPS growth rate of 9.9% for the next three-five years. The company surpassed earnings estimates in each of the trailing four quarters, with an average of 138.3%.

Owens & Minor, Inc. (OMI - Free Report) : This Virginia-headquartered firm distributes medical and surgical supplies throughout the United States.The Zacks Consensus Estimate for 2021 earnings and sales suggests year-over-year growth of 14.5% and 6.2%, respectively.It has an expected EPS growth rate of 45.2% for the next three-five years. The company surpassed earnings estimates in each of the trailing four quarters, with an average of 82.5%.

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.

DisclosureOfficers, 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 athttps://www.zacks.com/performance

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