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6 High Earnings Yield Picks That You Shouldn't Miss Out On
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If you are uncertain whether to invest your money in bonds or stocks, an important parameter that can show you the right path is earnings yield. It is the reciprocal of the price-to-earnings ratio. This ratio is very useful for determining undervalued stocks. Also, it is very effective for comparing stocks with the market or fixed income securities.
Earnings yield can be computed as (annual earnings per share/market price) x 100. While comparing similar stocks, the one with high earnings yield should fetch higher returns.
This ratio is very effective for comparing market performance with the 10-year Treasury yield. When the yield of the market index is higher than the 10-year Treasury yield, stocks can be said to be undervalued in comparison to bonds. This implies that investing in the stock market is a better option for a value investor.
While T-bills are risk-free, investing in stocks always carries some inherent risks. Hence, it will be wise to add a risk premium to the Treasury yield while comparing it with the earnings yield of a stock or the broader market.
Screening Parameters
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.
Below we have highlighted six of the 60 stocks that made it through the screen.
ArcelorMittal (MT - Free Report) : It is the world’s leading steel and mining company based in Luxembourg. With a presence in more than 60 countries, this Zacks Rank #1 company operates a balanced portfolio of cost competitive steel plants across both developed and developing countries. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 43.7% and 1,776.2%, respectively. The consensus mark for earnings for the current year has moved 30.2% north over the past 60 days.
Meritage Homes Corporation (MTH - Free Report) : Based in Scottsdale, this Zacks Rank #1 company primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury, and active-adult buyers in historically high-growth regions of the United States. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 15.2% and 72.3%, respectively. The consensus mark for earnings for the current year has moved 28.9% north over the past 60 days.
Silicon Motion Technology (SIMO - Free Report) : Domiciled in Atlanta, Silicon Motion is a leading developer of microcontroller ICs for NAND flash storage devices. The firm is riding on solid demand for solid-state drive controllers, and eMMC and UFS controllers. It currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 67.2% and 82.1%, respectively. The consensus mark for 2021 earnings has moved 13.2% upward over the past 60 days.
Donnelley Financial Solutions, Inc. (DFIN - Free Report) : This Chicago-based software and services provider offers content creation, management, and distribution as well as data analytics and multilingual localization services. The company currently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 3.3% and 96.6%, respectively. The consensus mark for 2021 earnings has moved 22% north over the past 60 days.
Ironwood Pharmaceuticals, Inc. (IRWD - Free Report) : Headquartered in Cambridge, Collegium is focused on the development and commercialization of treatments primarily addressing gastrointestinal diseases. The company currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 5%, and 60.7%, respectively. The consensus mark for earnings for the current year has moved north by 6 cents over the past 60 days.
Collegium Pharmaceutical, Inc. (COLL - Free Report) : Cumberland-based Collegium is a specialty pharmaceutical firm that develops and commercializes prescription as well as over-the-counter medicinal drugs for the treatment of central nervous system, respiratory, and skin-related disorders. The company currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 9.9% and 392.1%, respectively. The consensus mark for 2021 earnings has been upwardly revised by 41.6% over the past 60 days.
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.
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.
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6 High Earnings Yield Picks That You Shouldn't Miss Out On
If you are uncertain whether to invest your money in bonds or stocks, an important parameter that can show you the right path is earnings yield. It is the reciprocal of the price-to-earnings ratio. This ratio is very useful for determining undervalued stocks. Also, it is very effective for comparing stocks with the market or fixed income securities.
Earnings yield can be computed as (annual earnings per share/market price) x 100. While comparing similar stocks, the one with high earnings yield should fetch higher returns.
This ratio is very effective for comparing market performance with the 10-year Treasury yield. When the yield of the market index is higher than the 10-year Treasury yield, stocks can be said to be undervalued in comparison to bonds. This implies that investing in the stock market is a better option for a value investor.
While T-bills are risk-free, investing in stocks always carries some inherent risks. Hence, it will be wise to add a risk premium to the Treasury yield while comparing it with the earnings yield of a stock or the broader market.
Screening Parameters
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 six of the 60 stocks that made it through the screen.
ArcelorMittal (MT - Free Report) : It is the world’s leading steel and mining company based in Luxembourg. With a presence in more than 60 countries, this Zacks Rank #1 company operates a balanced portfolio of cost competitive steel plants across both developed and developing countries. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 43.7% and 1,776.2%, respectively. The consensus mark for earnings for the current year has moved 30.2% north over the past 60 days.
Meritage Homes Corporation (MTH - Free Report) : Based in Scottsdale, this Zacks Rank #1 company primarily engages in building and selling single-family homes for entry-level, first-time, move-up, luxury, and active-adult buyers in historically high-growth regions of the United States. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 15.2% and 72.3%, respectively. The consensus mark for earnings for the current year has moved 28.9% north over the past 60 days.
Silicon Motion Technology (SIMO - Free Report) : Domiciled in Atlanta, Silicon Motion is a leading developer of microcontroller ICs for NAND flash storage devices. The firm is riding on solid demand for solid-state drive controllers, and eMMC and UFS controllers. It currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 67.2% and 82.1%, respectively. The consensus mark for 2021 earnings has moved 13.2% upward over the past 60 days.
Donnelley Financial Solutions, Inc. (DFIN - Free Report) : This Chicago-based software and services provider offers content creation, management, and distribution as well as data analytics and multilingual localization services. The company currently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 3.3% and 96.6%, respectively. The consensus mark for 2021 earnings has moved 22% north over the past 60 days.
Ironwood Pharmaceuticals, Inc. (IRWD - Free Report) : Headquartered in Cambridge, Collegium is focused on the development and commercialization of treatments primarily addressing gastrointestinal diseases. The company currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 5%, and 60.7%, respectively. The consensus mark for earnings for the current year has moved north by 6 cents over the past 60 days.
Collegium Pharmaceutical, Inc. (COLL - Free Report) : Cumberland-based Collegium is a specialty pharmaceutical firm that develops and commercializes prescription as well as over-the-counter medicinal drugs for the treatment of central nervous system, respiratory, and skin-related disorders. The company currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2021 sales and earnings implies year-over-year growth of 9.9% and 392.1%, respectively. The consensus mark for 2021 earnings has been upwardly revised by 41.6% over the past 60 days.
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.
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.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance