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5 High Earnings-Yield Bets Amid an Uncertain Santa Rally
While Santa Claus is a fictional character, Santa rally is one seasonal trend in the stock market, which is widely lapped up by the researchers and the market pundits. A consensus carried out from 1950 to 2019 established the fact that December offered positive returns in 52 years and negative returns in 18 years with a return of 1.37%, on average, the second best seen in a year, per moneychimp.com.
The December uptrend is mainly attributed to the Santa Claus rally, which refers to the buoyancy in the stock market in the week between Christmas and the New Year's Day.Can the jolly old man in the red overalls provide a major boost to the stock market this time around?
Vaccine News, COVID-19 Cases & Stimulus Hopes to Rule December
It seems less likely that Christmas festivities and Santa Claus will rule the market this December, propelling stocks to trade in the green. Indeed, a surge in shopping during the holidays may provide support to Wall Street but it will primarily be the vaccine-related developments, COVID-19 cases and the coronavirus-aid package, which will call the shots for the stock market this season.
The FDA recently approved the Pfizer/BioNTech vaccine. While the U.S. authorization of the vaccine is a significant milestone in battling the deadly contagion, full-blown fresh wave of coronavirus cases is looming large, which is dampening investors’ optimism. Concerns still remain over a tediously lengthy delivery and distribution time of the immunization doses.
This tug of war between the rising cases of coronavirus and the nationwide implementation of the vaccine will be the chief deciding factor. Uncertainty over a second stimulus package to lift the coronavirus-battered economy also lingers. While the vaccine authorization is something to be cheerful about, the overall unpredictable market sentiment still prevails that could make this Christmas a little less joyous for investors.
Amid this scenario, investors can bet on high earnings yield stocks that are poised to do well irrespective of the Santa rally or a year-end pullback. 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).
Bet on High Earnings Yield Investing
Earnings yield is an interesting ratio to pick undervalued stocks with solid upside potential. It 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 undervalued than bonds. In this situation, investment 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.
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
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks.com featured highlights include: Winnebago, General Motors, 360 DigiTech, Fulgent Genetics and Ally Financial
For Immediate Release
Chicago, IL – December 15, 2020 – Stocks in this week’s article are Winnebago Industries (WGO - Free Report) , General Motors Company (GM - Free Report) , 360 DigiTech, Inc. (QFIN - Free Report) , Fulgent Genetics, Inc. (FLGT - Free Report) and Ally Financial Inc. (ALLY - Free Report) .
5 High Earnings-Yield Bets Amid an Uncertain Santa Rally
While Santa Claus is a fictional character, Santa rally is one seasonal trend in the stock market, which is widely lapped up by the researchers and the market pundits. A consensus carried out from 1950 to 2019 established the fact that December offered positive returns in 52 years and negative returns in 18 years with a return of 1.37%, on average, the second best seen in a year, per moneychimp.com.
The December uptrend is mainly attributed to the Santa Claus rally, which refers to the buoyancy in the stock market in the week between Christmas and the New Year's Day.Can the jolly old man in the red overalls provide a major boost to the stock market this time around?
Vaccine News, COVID-19 Cases & Stimulus Hopes to Rule December
It seems less likely that Christmas festivities and Santa Claus will rule the market this December, propelling stocks to trade in the green. Indeed, a surge in shopping during the holidays may provide support to Wall Street but it will primarily be the vaccine-related developments, COVID-19 cases and the coronavirus-aid package, which will call the shots for the stock market this season.
The FDA recently approved the Pfizer/BioNTech vaccine. While the U.S. authorization of the vaccine is a significant milestone in battling the deadly contagion, full-blown fresh wave of coronavirus cases is looming large, which is dampening investors’ optimism. Concerns still remain over a tediously lengthy delivery and distribution time of the immunization doses.
This tug of war between the rising cases of coronavirus and the nationwide implementation of the vaccine will be the chief deciding factor. Uncertainty over a second stimulus package to lift the coronavirus-battered economy also lingers. While the vaccine authorization is something to be cheerful about, the overall unpredictable market sentiment still prevails that could make this Christmas a little less joyous for investors.
Amid this scenario, investors can bet on high earnings yield stocks that are poised to do well irrespective of the Santa rally or a year-end pullback. 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).
Bet on High Earnings Yield Investing
Earnings yield is an interesting ratio to pick undervalued stocks with solid upside potential. It 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 undervalued than bonds. In this situation, investment 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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1164051/5-high-earnings-yield-bets-amid-an-uncertain-santa-rally
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
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.