For intelligent investors who intend to invest money either in bonds or stocks, information on certain key financial parameters is very important. One such key parameter is earnings yield. It is the reciprocal of the price-to-earnings ratio. This ratio is vital for tracking undervalued stocks. It also comes in handy for comparing stocks with the market or fixed income securities.
Earnings yield can be derived as (Annual Earnings per Share/Market Price) x 100. While comparing stocks from the same sector or industry, the one with higher earnings yield is likely to fetch better returns.
For comparing the performance of a market index with the 10-year Treasury yield, this ratio is very useful. When the yield of the market index is higher than the 10-year Treasury yield, stocks can be dubbed as undervalued in comparison to bonds. This indicates that investing in the stock market is a better choice for a value investor.
Investment in Treasury-bill is risk free. Yet, investing in stocks always comes with a caveat. Hence, it is a good idea to add a risk premium to Treasury yield while comparing it with the earnings yield of a stock or the broader 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 five of the 79 stocks that made it through the screen.
Intrepid Potash, Inc ( IPI Quick Quote IPI - Free Report) : This Colorado-based firm is the largest producer of potash in the United States that is dedicated to the production, and marketing of potash as well as langbeinite. The company currently sports a Zacks Rank #1 and has a VGM Score of B. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 39.4% and 251.3%, respectively. Marathon Digital Holdings ( MARA Quick Quote MARA - Free Report) : Based in Las Vegas, Marathon Digital Holdings is a digital asset technology company that mines cryptocurrencies, with a focus on the blockchain ecosystem and generation of digital assets. It currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 5,139% and 958.3%, respectively. Covenant Logistics Group Inc. ( CVLG Quick Quote CVLG - Free Report) : Headquartered in Tennessee, the firm offers a portfolio of transportation and logistics services through its subsidiaries. The company sports a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 18% and 217%, respectively. Silicon Motion Technology ( SIMO Quick Quote SIMO - Free Report) : Domiciled in Atlanta, Silicon Motion is a leading developer of microcontroller ICs for NAND flash storage devices. It currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 67% and 77%, respectively. Axis Capital Holdings Limited ( AXS Quick Quote AXS - Free Report) : This Bermuda-based provider of various specialty insurance and reinsurance products currently carries a Zacks Rank #2 and has a VGM Score of B. It has a long-term expected EPS growth rate of 5%. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 12% and 337%, respectively.
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Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance