For investors wanting to gain exposure to stocks and bonds, a simple yet effective measure to use is earnings yield. The ratio is an inverse of the price-to-earnings ratio, which is usually utilized to find undervalued stocks. However, for comparison of stocks with fixed-income securities or the market at large, earnings yield may prove to be more apt.
Earnings yield is calculated as (Annual Earnings per Share/Market Price) x 100. Stocks with higher earnings yield are expected to offer better returns.
Earnings yield may also be used to compare the performance of a market index with the 10-year Treasury yield. The market index is considered undervalued than the 10-year Treasury bill when market yield is higher than that of bond. In such a situation, value investors may 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. Thus, 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.
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 Choices
Below we have highlighted four of the 38 stocks that made it through the screen.
ArcelorMittal ( MT Quick Quote MT - Free Report) : Luxembourg-based ArcelorMittal is the world’s leading steel and mining company. It remains on track with cost-reduction actions under the Action 2020 program that includes plans to optimize costs and increase steel shipment volumes. This Zacks Rank #1 firm is also focused on shifting to high added-value products — including the automotive steel line — that offer growth visibility. The consensus estimate for 2021 sales and earnings implies year-over-year growth of 13.8% and 471.2%, respectively. Ford ( F Quick Quote F - Free Report) : Ford is one of the Big 3 Detroit automakers, flaunting a Zacks Rank #1. The auto giant’s focus on SUVs and trucks, along with upcoming electric vehicle launches are likely to boost long-term prospects. Operational efficiency and superior liquidity profile of the firm offer an added advantage. The consensus estimate for 2021 sales and earnings implies year-over-year growth of 22.4% and 9,786.7%, respectively. Pilgrims Pride Corporation ( PPC Quick Quote PPC - Free Report) : Colorado-based poultry processor is in a good shape, courtesy of strategic growth endeavors that include customer-centric approach, among others. Moreover, strength in European operations and focus on expanding its fresh food offerings are impressive. The Zacks Rank #2 company has a long-term expected EPS growth rate of 5.3%. LG Display Co., Ltd. ( LPL Quick Quote LPL - Free Report) :Headquartered in St. Petersburg, Jabil is one of the largest global suppliers of electronic manufacturing services. Contract wins in healthcare, automotive, cloud and 5G arenas augur well for the firm. The firm’s ample liquidity and efforts to optimize manufacturing footprint are praiseworthy. This Zacks Rank #2 firm has a long-term expected EPS growth rate of 12%.
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Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance