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Earnings yield is useful for investors concerned about the rate of return on investment. This metric, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price — the inverse of the price-to-earnings (P/E) ratio.
While comparing stocks, if other factors are similar, the one with higher earnings yield is considered undervalued. That’s because this metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today.
Earnings yield is not as widely used as the P/E ratio as a valuation metric but investors most commonly compare the earnings yield of a stock to the prevailing interest rates, such as the current 10-year Treasury yield, to get a sense of the return on investment it offers compared to virtually risk-free returns.
If the yield on a stock is lower than the 10-year Treasury yield, it would be considered overvalued relative to bonds. Conversely, if the yield on the stock is higher, it would be considered undervalued.
The Winning Strategy
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.
Here we discuss four of the 61 stocks that qualified the screen:
TotalEnergies: TotalEnergies operates as an integrated oil and gas company globally. It has one of the best production growth profiles among the oil super majors, characterized by an upstream portfolio with above industry-average exposure to the faster-growing hydrocarbon producing regions of the world.
TTE has a Zacks Rank #1 and an expected EPS growth rate of 20.7% for three-five years. The company has a trailing four-quarter earnings surprise of 12.9%, on average. The Zacks Consensus Estimate for TotalEnergies’ 2022 EPS suggests growth of 10.24% year over year.
Nutrien: Nutrien is a leading provider of crop inputs and services. The company is benefiting from solid demand and higher prices for crop nutrients. It is also gaining from acquisitions, cost efficiency and increased adoption of its digital platform.
NTR has a Zacks Rank #1 and an expected EPS growth rate of 8% for three-five years. The company has a trailing four-quarter earnings surprise of 73.5%, on average. The Zacks Consensus Estimate for Nutrien’s 2022 EPS suggests growth of 46.9% year over year.
FedEx: FedEx is the leader in global express delivery services. The firm’s efforts to improve e-commerce offerings helped it thrive during the peak of the pandemic. FedEx is now prepared to thrive in last-mile delivery and has provided strong fiscal 2022 guidance.
FDX has a Zacks Rank #2 and an expected EPS growth rate of 12% for three-five years. The company has a trailing four-quarter earnings surprise of 2.5%, on average. The Zacks Consensus Estimate for FedEx’s fiscal 2022 EPS suggests growth of 14.6% year over year.
Pfizer: This is a global pharmaceutical company that discovers, manufactures, and markets medicines for humans as well as animals. PFE’s diversified portfolio includes biologic and small molecule medicines, vaccines as well as nutritional healthcare products.
PFE has a Zacks Rank #1 and an expected EPS growth rate of 12.5% for three-five years. The company has a trailing four-quarter earnings surprise of 10.85%, on average. The Zacks Consensus Estimate for Pfizer’s 2022 EPS suggests growth of 35.3% year over year.
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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4 Lucrative Bets Boasting High Earnings Yield
Earnings yield is useful for investors concerned about the rate of return on investment. This metric, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price — the inverse of the price-to-earnings (P/E) ratio.
While comparing stocks, if other factors are similar, the one with higher earnings yield is considered undervalued. That’s because this metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today.
TotalEnergies SE (TTE - Free Report) , Nutrien (NTR - Free Report) , FedEx Corporation (FDX - Free Report) and Pfizer Inc. (PFE - Free Report) could be some attractive bets if you are looking for high earnings yield picks.
Earnings yield is not as widely used as the P/E ratio as a valuation metric but investors most commonly compare the earnings yield of a stock to the prevailing interest rates, such as the current 10-year Treasury yield, to get a sense of the return on investment it offers compared to virtually risk-free returns.
If the yield on a stock is lower than the 10-year Treasury yield, it would be considered overvalued relative to bonds. Conversely, if the yield on the stock is higher, it would be considered undervalued.
The Winning Strategy
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
Here we discuss four of the 61 stocks that qualified the screen:
TotalEnergies: TotalEnergies operates as an integrated oil and gas company globally. It has one of the best production growth profiles among the oil super majors, characterized by an upstream portfolio with above industry-average exposure to the faster-growing hydrocarbon producing regions of the world.
TTE has a Zacks Rank #1 and an expected EPS growth rate of 20.7% for three-five years. The company has a trailing four-quarter earnings surprise of 12.9%, on average. The Zacks Consensus Estimate for TotalEnergies’ 2022 EPS suggests growth of 10.24% year over year.
Nutrien: Nutrien is a leading provider of crop inputs and services. The company is benefiting from solid demand and higher prices for crop nutrients. It is also gaining from acquisitions, cost efficiency and increased adoption of its digital platform.
NTR has a Zacks Rank #1 and an expected EPS growth rate of 8% for three-five years. The company has a trailing four-quarter earnings surprise of 73.5%, on average. The Zacks Consensus Estimate for Nutrien’s 2022 EPS suggests growth of 46.9% year over year.
FedEx: FedEx is the leader in global express delivery services. The firm’s efforts to improve e-commerce offerings helped it thrive during the peak of the pandemic. FedEx is now prepared to thrive in last-mile delivery and has provided strong fiscal 2022 guidance.
FDX has a Zacks Rank #2 and an expected EPS growth rate of 12% for three-five years. The company has a trailing four-quarter earnings surprise of 2.5%, on average. The Zacks Consensus Estimate for FedEx’s fiscal 2022 EPS suggests growth of 14.6% year over year.
Pfizer: This is a global pharmaceutical company that discovers, manufactures, and markets medicines for humans as well as animals. PFE’s diversified portfolio includes biologic and small molecule medicines, vaccines as well as nutritional healthcare products.
PFE has a Zacks Rank #1 and an expected EPS growth rate of 12.5% for three-five years. The company has a trailing four-quarter earnings surprise of 10.85%, on average. The Zacks Consensus Estimate for Pfizer’s 2022 EPS suggests growth of 35.3% year over year.
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.