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4 High Earnings Yield Stocks to Cope With a Topsy-Turvy Market
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Wall Street’s nightmare continues as the S&P 500 and Nasdaq recorded the fifth consecutive day of declines yesterday. The stock market has witnessed stomach-churning volatility so far this year, thanks to the Russia-Ukraine war, Fed’s ultra-hawkish stance and inflationary concerns. Year to date, the Dow, the S&P 500 and the Nasdaq Composite have plunged 19.5%, 24.7% and 33.3%, respectively.
Investors are awaiting the Consumer Price Index (CPI) report, which will come out tomorrow and offer further insight into whether Fed’s aggressive stance is yielding desired results. The quicker inflation begins to cool, the sooner the Fed can slow the trajectory of interest rate hikes. But the Fed has already hinted that rates are likely to hit 4.40% in 2022 and 4.6% in 2023.
The path of rate hikes will determine the odds of a soft landing or recession for the U.S. economy. JPMorgan CEO Jamie Dimon has warned that the United States is headed for a recession in six-nine months. Amid the Fed’s resolute stance on the contractionary monetary policy, a global financial crisis looms large. Yesterday, the International Monetary Fund (IMF) lowered its forecast for 2023 global GDP to 2.7% from the previous estimate of 2.9%.
Adopt Value Investing Approach
Market volatility calls for investors to tread cautiously and rethink their portfolio strategy. Value investing could be one of the most effective investment approaches amid the escalating uncertainty. We have highlighted four value stocks, namely Albemarle Corporation (ALB - Free Report) , CNH Industrial (CNHI - Free Report) , Helmerich & Payne Inc. (HP - Free Report) and National Fuel Gas Company (NFG - Free Report) , which carry high earnings yield and are worth placing your bets on.
Value investing takes a long-term view and seeks to gauge the intrinsic value of the companies based on their fundamental strength, earnings potential and financials. Value investors benefit from identifying and buying stocks, which are underestimated by the equity market and are thus trading below their true value, and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect the actual fundamentals.
Unlock Your Portfolio Value Via Earnings Yield Metric
One of the most common valuation metrics to pick undervalued stocks with solid upside potential is the P/E ratio. However, there’s another interesting ratio that you can consider for ferreting out attractively valued stocks. And that is earnings yield, which is nothing but the reciprocal of the P/E ratio, albeit a little more illuminating than the traditional P/E ratio.
Earnings yield is calculated as annual earnings per share (EPS) divided by market price — the inverse of the P/E ratio. This metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today. While comparing stocks, if other factors are similar, the one with higher earnings yield is considered undervalued, while those with lower earnings yield are seen as overpriced.
Earnings yield has the edge over the P/E ratio as the former also facilitates the comparison of stocks with fixed-income securities. Investors often 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. In this situation, investing in the stock market would be a better option for a value investor.
Selection Criteria
We have set an 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 are four of the 131 stocks that made it through the screen:
Albemarle: Charlotte-based Albemarle is a premier specialty chemicals company. Albemarle is benefiting from higher volumes in its lithium business. Higher customer demand, new capacity and plant productivity improvements are supporting volumes. The company also remains committed to delivering incremental returns to its shareholders.
The Zacks Consensus Estimate for Albemarle’s 2022 and 2023 earnings suggests year-over-year growth of 427% and 24%, respectively. ALB surpassed estimates in the trailing four quarters, the average being 24.2%. The stock currently sports a Zacks Rank #1.
CNH Industrial: London-based CNH Industrial is one of the leading equipment and services companies engaged in the manufacture and sale of agricultural and construction equipment. Raven Industries and Sampierana buyouts have bolstered the prospects of CNH Industrial's Agriculture and Construction segments, respectively.
The Zacks Consensus Estimate for CNH Industrial’s 2022 and 2023 earnings suggests year-over-year growth of 1.5% and 10%, respectively. CNHI surpassed estimates in the trailing four quarters, the average being 27.7%. The stock currently sports a Zacks Rank #1.
Helmerich & Payne: This Oklahoma-based company is engaged in the contract drilling of oil and gas wells in the United States & internationally. Its technologically-advanced FlexRigs are able to maintain relatively strong daily-rate margins, giving the firm an edge over its peers. HP’s digitization efforts and strong balance sheet are also praiseworthy.
The Zacks Consensus Estimate for Helmerich & Payne’s fiscal 2022 and 2023 earnings suggests year-over-year growth of 98.5% and 8,735%, respectively. HP surpassed earnings estimates in three out of four trailing quarters and missed once, the average being 118.2%. The stock currently sports a Zacks Rank #1.
National Fuel Gas: New York-based National Fuel Gas Company is an integrated natural gas company with operations across all segments of the natural gas industry, including utility, pipeline and storage, production, and marketing. The acquisition of Shell’s assets, a strong presence in the Appalachian region, and expanding upstream and midstream operations augur well for the company’s growth.
The Zacks Consensus Estimate for NFG’s fiscal 2022 and 2023 earnings suggests year-over-year growth of 40% and 23%, respectively. The company surpassed earnings estimates in the trailing four quarters, the average being 9%. The stock currently sports a Zacks Rank #1.
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.
Image: Shutterstock
4 High Earnings Yield Stocks to Cope With a Topsy-Turvy Market
Wall Street’s nightmare continues as the S&P 500 and Nasdaq recorded the fifth consecutive day of declines yesterday. The stock market has witnessed stomach-churning volatility so far this year, thanks to the Russia-Ukraine war, Fed’s ultra-hawkish stance and inflationary concerns. Year to date, the Dow, the S&P 500 and the Nasdaq Composite have plunged 19.5%, 24.7% and 33.3%, respectively.
Investors are awaiting the Consumer Price Index (CPI) report, which will come out tomorrow and offer further insight into whether Fed’s aggressive stance is yielding desired results. The quicker inflation begins to cool, the sooner the Fed can slow the trajectory of interest rate hikes. But the Fed has already hinted that rates are likely to hit 4.40% in 2022 and 4.6% in 2023.
The path of rate hikes will determine the odds of a soft landing or recession for the U.S. economy. JPMorgan CEO Jamie Dimon has warned that the United States is headed for a recession in six-nine months. Amid the Fed’s resolute stance on the contractionary monetary policy, a global financial crisis looms large. Yesterday, the International Monetary Fund (IMF) lowered its forecast for 2023 global GDP to 2.7% from the previous estimate of 2.9%.
Adopt Value Investing Approach
Market volatility calls for investors to tread cautiously and rethink their portfolio strategy. Value investing could be one of the most effective investment approaches amid the escalating uncertainty. We have highlighted four value stocks, namely Albemarle Corporation (ALB - Free Report) , CNH Industrial (CNHI - Free Report) , Helmerich & Payne Inc. (HP - Free Report) and National Fuel Gas Company (NFG - Free Report) , which carry high earnings yield and are worth placing your bets on.
Value investing takes a long-term view and seeks to gauge the intrinsic value of the companies based on their fundamental strength, earnings potential and financials. Value investors benefit from identifying and buying stocks, which are underestimated by the equity market and are thus trading below their true value, and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect the actual fundamentals.
Unlock Your Portfolio Value Via Earnings Yield Metric
One of the most common valuation metrics to pick undervalued stocks with solid upside potential is the P/E ratio. However, there’s another interesting ratio that you can consider for ferreting out attractively valued stocks. And that is earnings yield, which is nothing but the reciprocal of the P/E ratio, albeit a little more illuminating than the traditional P/E ratio.
Earnings yield is calculated as annual earnings per share (EPS) divided by market price — the inverse of the P/E ratio. This metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today. While comparing stocks, if other factors are similar, the one with higher earnings yield is considered undervalued, while those with lower earnings yield are seen as overpriced.
Earnings yield has the edge over the P/E ratio as the former also facilitates the comparison of stocks with fixed-income securities. Investors often 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. In this situation, investing in the stock market would be a better option for a value investor.
Selection Criteria
We have set an 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.
4 Stocks to Buy
Here are four of the 131 stocks that made it through the screen:
Albemarle: Charlotte-based Albemarle is a premier specialty chemicals company. Albemarle is benefiting from higher volumes in its lithium business. Higher customer demand, new capacity and plant productivity improvements are supporting volumes. The company also remains committed to delivering incremental returns to its shareholders.
The Zacks Consensus Estimate for Albemarle’s 2022 and 2023 earnings suggests year-over-year growth of 427% and 24%, respectively. ALB surpassed estimates in the trailing four quarters, the average being 24.2%. The stock currently sports a Zacks Rank #1.
CNH Industrial: London-based CNH Industrial is one of the leading equipment and services companies engaged in the manufacture and sale of agricultural and construction equipment. Raven Industries and Sampierana buyouts have bolstered the prospects of CNH Industrial's Agriculture and Construction segments, respectively.
The Zacks Consensus Estimate for CNH Industrial’s 2022 and 2023 earnings suggests year-over-year growth of 1.5% and 10%, respectively. CNHI surpassed estimates in the trailing four quarters, the average being 27.7%. The stock currently sports a Zacks Rank #1.
Helmerich & Payne: This Oklahoma-based company is engaged in the contract drilling of oil and gas wells in the United States & internationally. Its technologically-advanced FlexRigs are able to maintain relatively strong daily-rate margins, giving the firm an edge over its peers. HP’s digitization efforts and strong balance sheet are also praiseworthy.
The Zacks Consensus Estimate for Helmerich & Payne’s fiscal 2022 and 2023 earnings suggests year-over-year growth of 98.5% and 8,735%, respectively. HP surpassed earnings estimates in three out of four trailing quarters and missed once, the average being 118.2%. The stock currently sports a Zacks Rank #1.
National Fuel Gas: New York-based National Fuel Gas Company is an integrated natural gas company with operations across all segments of the natural gas industry, including utility, pipeline and storage, production, and marketing. The acquisition of Shell’s assets, a strong presence in the Appalachian region, and expanding upstream and midstream operations augur well for the company’s growth.
The Zacks Consensus Estimate for NFG’s fiscal 2022 and 2023 earnings suggests year-over-year growth of 40% and 23%, respectively. The company surpassed earnings estimates in the trailing four quarters, the average being 9%. The stock currently sports a Zacks Rank #1.
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.