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Beat Market Volatility With These 5 High Earnings Yield Bets
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The U.S. market has been suffering from severe bouts of volatility since the start of 2022. The Russia-Ukraine war, a devasted supply-chain system, 41-year high inflation and Fed’s aggressive action have dented investors’ confidence in equities. Stocks have corrected drastically so far in 2022, after a rallying high in the last years. Fed officials have signaled interest rates hike by another 75 basis points later this month as part of its ultra-hawkish stance to tame the sky-high inflation. Volatility in the U.S. stock markets is showing little signs of abatement.
In times of such market mayhem, investors might be tempted to resort to panic selling. But the pullback has brought value investing into focus, giving investors a chance to scoop up strong stocks with irresistible entry points. The value investing approach seeks to profit from investing in stocks that appear to be trading at a discount to their intrinsic values and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect actual fundamentals.
One could consider investing in value stocks like Cabot Corporation (CBT - Free Report) , American Axle & Manufacturing (AXL - Free Report) , BP plc (BP - Free Report) , Haliburton (HAL - Free Report) and Crane Co. (CR - Free Report) , which boast high earnings yield and can fetch you handsome long-term rewards.
Understanding Earnings Yield
Investors often use the P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. However, one can also use another interesting ratio. Earnings yield, expressed in percentage, is calculated as (Annual Earnings per Share/Market Price) x 100.
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). Thus, a firm having a P/E ratio of 10.2 will logically have an earnings yield of 9.8% (100/10.2). In fact, as the concept of earnings yield is already indirectly captured in the P/E ratio, earnings yield as an investment valuation metric is not as widely used as the P/E ratio.
Having said that, it should be noted that earnings yield is an important tool for investors with exposure to both stocks and bonds. In fact, with regard to this, earnings yield can be more illuminating than the traditional P/E ratio as the former facilitates comparisons of stocks with fixed- income securities. 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 as undervalued than bonds. In this situation, investing in the stock market would be a better option for a value investor.
While comparing stocks, if other factors are similar, investors can look out for stocks with higher earnings yield. This is because stocks with higher earnings yield have the potential to provide comparatively greater returns. Firms with higher earnings yield are considered underpriced, while those with lower earnings yield are seen as overpriced.
The Selection Criteria
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 five of the 143 stocks that qualified the screen:
Cabot: Based in Boston, Cabot is a leading global specialty chemicals and performance materials company. The firm is committed to boosting its specialty compounds business globally. It is riding on several acquisitions, including NSCC Carbon black plant, Shenzhen Sanshun, and Tokai Carbon black plant among others. Healthy cash flows, balance sheet strength and shareholder-friendly moves are positives in Cabot’s story.
The Zacks Consensus Estimate for Cabot’s fiscal 2022 sales and earnings implies year-over-year growth of 22.5% each. The consensus mark for EPS has moved north by 15 cents over the past 60 days. Over the trailing four quarters, Cabot surpassed earnings estimates on all occasions, with the average surprise being 16.17%. The stock currently sports a Zacks Rank #1.
American Axle: Detroit-based American Axle is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. The company is gaining new businesses with its innovative driveline solution, which is expected to support customer demand for advanced technologies. AXL is poised to reap benefits from Inovance and REE Automotive collaborations. The company’s efforts toward debt reduction and refinancing actions are praiseworthy.
The Zacks Consensus Estimate for AXL’s fiscal 2022 sales implies year-over-year growth of 11.2% each. The consensus mark for fiscal EPS has moved north by 2 cents over the past 30 days. Over the trailing four quarters, American Axle surpassed earnings estimates on three occasions and missed once, with the average surprise being 847.9%. The stock currently sports a Zacks Rank #1.
BP: Headquartered in London, BP is a fully integrated energy company, with a strong focus on renewable energy.The British energy giant has a strong portfolio of upstream projects that are expected to fetch significant cash flows. The company is generating handsome returns from refining and marketing operations, thanks to the reopening of the economies. Encouragingly, BP expects that if the oil price trades around $60 per barrel, it will be able to hike its dividend per ordinary share by around 4% annually through 2025.
The Zacks Consensus Estimate for BP’s 2022 earnings and sales implies year-over-year growth of 96% and 28%, respectively. The consensus mark for EPS has moved north by 72 cents over the past 30 days. Over the trailing four quarters, BP surpassed earnings estimates on all occasions, with the average surprise being 19.9%. The stock currently sports a Zacks Rank #1.
Halliburton: Houston-based Halliburton is one of the largest oilfield service providers in the world. Through its market-leading pressure pumping operations, Halliburton is well-positioned to benefit from rising U.S. land drilling activity, tightening supply/demand fundamentals and pricing momentum.Halliburton's strong free cash flow generating ability indicates its financial strength. Its healthy relationship with national oil companies and digitization efforts also bode well.
The Zacks Consensus Estimate for HAL’s 2022 earnings and sales implies year-over-year growth of 78% and 25.5%, respectively. The consensus mark for EPS has moved north by a penny over the past 30 days. Over the trailing four quarters, Halliburton surpassed earnings estimates on all occasions, with the average surprise being 6%. The stock currently holds a Zacks Rank #2.
Crane: Stamford-based Crane is recognized for its diversified product portfolio of engineered industrial products with exposure in multiple end markets. Also, an efficient management team, improving order trends, efforts to develop products, investment in technology and a focus on commercial excellence augur well. Rewards to its shareholders and a focus on product innovation raise the company’s appeal.
The Zacks Consensus Estimate for Crane’s 2022 earnings and sales implies year-over-year growth of 14.7% and 2.4%, respectively. The consensus mark for EPS has moved north by 2 cents over the past 30 days. Over the trailing four quarters, CR surpassed earnings estimates on all occasions, with the average surprise being 22.2%. The stock currently holds a Zacks Rank #2.
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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Beat Market Volatility With These 5 High Earnings Yield Bets
The U.S. market has been suffering from severe bouts of volatility since the start of 2022. The Russia-Ukraine war, a devasted supply-chain system, 41-year high inflation and Fed’s aggressive action have dented investors’ confidence in equities. Stocks have corrected drastically so far in 2022, after a rallying high in the last years. Fed officials have signaled interest rates hike by another 75 basis points later this month as part of its ultra-hawkish stance to tame the sky-high inflation. Volatility in the U.S. stock markets is showing little signs of abatement.
In times of such market mayhem, investors might be tempted to resort to panic selling. But the pullback has brought value investing into focus, giving investors a chance to scoop up strong stocks with irresistible entry points. The value investing approach seeks to profit from investing in stocks that appear to be trading at a discount to their intrinsic values and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect actual fundamentals.
One could consider investing in value stocks like Cabot Corporation (CBT - Free Report) , American Axle & Manufacturing (AXL - Free Report) , BP plc (BP - Free Report) , Haliburton (HAL - Free Report) and Crane Co. (CR - Free Report) , which boast high earnings yield and can fetch you handsome long-term rewards.
Understanding Earnings Yield
Investors often use the P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. However, one can also use another interesting ratio. Earnings yield, expressed in percentage, is calculated as (Annual Earnings per Share/Market Price) x 100.
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). Thus, a firm having a P/E ratio of 10.2 will logically have an earnings yield of 9.8% (100/10.2). In fact, as the concept of earnings yield is already indirectly captured in the P/E ratio, earnings yield as an investment valuation metric is not as widely used as the P/E ratio.
Having said that, it should be noted that earnings yield is an important tool for investors with exposure to both stocks and bonds. In fact, with regard to this, earnings yield can be more illuminating than the traditional P/E ratio as the former facilitates comparisons of stocks with fixed- income securities. 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 as undervalued than bonds. In this situation, investing in the stock market would be a better option for a value investor.
While comparing stocks, if other factors are similar, investors can look out for stocks with higher earnings yield. This is because stocks with higher earnings yield have the potential to provide comparatively greater returns. Firms with higher earnings yield are considered underpriced, while those with lower earnings yield are seen as overpriced.
The Selection Criteria
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.
5 Prominent Picks
Here we discuss five of the 143 stocks that qualified the screen:
Cabot: Based in Boston, Cabot is a leading global specialty chemicals and performance materials company. The firm is committed to boosting its specialty compounds business globally. It is riding on several acquisitions, including NSCC Carbon black plant, Shenzhen Sanshun, and Tokai Carbon black plant among others. Healthy cash flows, balance sheet strength and shareholder-friendly moves are positives in Cabot’s story.
The Zacks Consensus Estimate for Cabot’s fiscal 2022 sales and earnings implies year-over-year growth of 22.5% each. The consensus mark for EPS has moved north by 15 cents over the past 60 days. Over the trailing four quarters, Cabot surpassed earnings estimates on all occasions, with the average surprise being 16.17%. The stock currently sports a Zacks Rank #1.
American Axle: Detroit-based American Axle is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. The company is gaining new businesses with its innovative driveline solution, which is expected to support customer demand for advanced technologies. AXL is poised to reap benefits from Inovance and REE Automotive collaborations. The company’s efforts toward debt reduction and refinancing actions are praiseworthy.
The Zacks Consensus Estimate for AXL’s fiscal 2022 sales implies year-over-year growth of 11.2% each. The consensus mark for fiscal EPS has moved north by 2 cents over the past 30 days. Over the trailing four quarters, American Axle surpassed earnings estimates on three occasions and missed once, with the average surprise being 847.9%. The stock currently sports a Zacks Rank #1.
BP: Headquartered in London, BP is a fully integrated energy company, with a strong focus on renewable energy.The British energy giant has a strong portfolio of upstream projects that are expected to fetch significant cash flows. The company is generating handsome returns from refining and marketing operations, thanks to the reopening of the economies. Encouragingly, BP expects that if the oil price trades around $60 per barrel, it will be able to hike its dividend per ordinary share by around 4% annually through 2025.
The Zacks Consensus Estimate for BP’s 2022 earnings and sales implies year-over-year growth of 96% and 28%, respectively. The consensus mark for EPS has moved north by 72 cents over the past 30 days. Over the trailing four quarters, BP surpassed earnings estimates on all occasions, with the average surprise being 19.9%. The stock currently sports a Zacks Rank #1.
Halliburton: Houston-based Halliburton is one of the largest oilfield service providers in the world. Through its market-leading pressure pumping operations, Halliburton is well-positioned to benefit from rising U.S. land drilling activity, tightening supply/demand fundamentals and pricing momentum.Halliburton's strong free cash flow generating ability indicates its financial strength. Its healthy relationship with national oil companies and digitization efforts also bode well.
The Zacks Consensus Estimate for HAL’s 2022 earnings and sales implies year-over-year growth of 78% and 25.5%, respectively. The consensus mark for EPS has moved north by a penny over the past 30 days. Over the trailing four quarters, Halliburton surpassed earnings estimates on all occasions, with the average surprise being 6%. The stock currently holds a Zacks Rank #2.
Crane: Stamford-based Crane is recognized for its diversified product portfolio of engineered industrial products with exposure in multiple end markets. Also, an efficient management team, improving order trends, efforts to develop products, investment in technology and a focus on commercial excellence augur well. Rewards to its shareholders and a focus on product innovation raise the company’s appeal.
The Zacks Consensus Estimate for Crane’s 2022 earnings and sales implies year-over-year growth of 14.7% and 2.4%, respectively. The consensus mark for EPS has moved north by 2 cents over the past 30 days. Over the trailing four quarters, CR surpassed earnings estimates on all occasions, with the average surprise being 22.2%. The stock currently holds a Zacks Rank #2.
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.