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4 High Earnings Yield Picks That You Shouldn't Ignore
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Investors often use the P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. One can also use another interesting ratio. Earnings yield, expressed in percentage, is calculated as (Annual Earnings per Share/Market Price) x 100. 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 of providing comparatively greater returns. Albemarle Corporation (ALB - Free Report) , Chevron Corporation (CVX - Free Report) , Jazz Pharmaceuticals (JAZZ - Free Report) and Cummins Inc. (CMI - Free Report) are some stocks boasting high earnings yield.
Just like the case with dividend yield, firms with higher earnings yield are considered underpriced, while those with lower earnings yield are seen as overpriced. Earnings yield captures both the tangible and intangible yield of a firm, as opposed to dividend yield, which only takes into account the tangible yield.
Importantly, 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.
Earnings Yield: Simply the Inverse of P/E
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). 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 the comparison of stocks with fixed-income securities.
The Winning Strategy
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 we discuss four of the 131 stocks that qualified the screen:
Albemarle: Charlotte-based Albemarle is a premier specialty chemicals company with leading positions in attractive end markets globally.Albemarle remains focused on strengthening its lithium business and is taking actions to grow its key businesses. It is also expected to gain from synergies of the Rockwood acquisition and cost actions.
The Zacks Consensus Estimate for ALB’s 2022 earnings and sales implies year-over-year growth of 430.7% and 124%, respectively. The 2022 bottom-line estimate has been revised upward by 16 cents a share over the past seven days.
Chevron: California-based Chevron is one of the leading integrated oil and gas companies. The acquisition of Noble Energy has expanded Chevron’s presence in the DJ Basin and the Permian Basin.The takeover is also estimated to generate significant cost savings. The company’s strong financials augur well.
The Zacks Consensus Estimate for CVX’s 2022 earnings and sales implies year-over-year growth of 127.3% and 46%, respectively. The 2022 bottom-line estimate has been revised upward by $1.1 a share over the past seven days.
Jazz: Ireland-based Jazz is a specialty biopharmaceutical company with a focus in the areas of neuroscience and oncology. The acquisition of GW Pharma diversified its commercial portfolio by adding a third high-growth commercial franchise of cannabidiol drugs to the business. Jazz’s revenues continue to benefit from strong demand for newer drugs like Xywav, Epidiolex and Rylaze.
The Zacks Consensus Estimate for JAZZ’s 2022 earnings and sales implies year-over-year growth of 7% and 18%, respectively. The 2022 bottom-line estimate has been revised upward by 2 cents a share over the past seven days.
Cummins: Cummins is the largest engine producer in the world and maintains a diverse global footprint. Its position as a global power leader with dominant market and commitment to moving toward a carbon-neutral future is commendable.The buyout of Meritor positions Cummins as a leading provider of integrated powertrain solutions across internal combustion and electric power applications.
The Zacks Consensus Estimate for CMI’s 2022 earnings and sales implies year-over-year growth of 18.4% and 12%, respectively. The 2022 bottom-line estimate has been revised upward by 2 cents a share over the past seven 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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4 High Earnings Yield Picks That You Shouldn't Ignore
Investors often use the P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. One can also use another interesting ratio. Earnings yield, expressed in percentage, is calculated as (Annual Earnings per Share/Market Price) x 100. 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 of providing comparatively greater returns. Albemarle Corporation (ALB - Free Report) , Chevron Corporation (CVX - Free Report) , Jazz Pharmaceuticals (JAZZ - Free Report) and Cummins Inc. (CMI - Free Report) are some stocks boasting high earnings yield.
Just like the case with dividend yield, firms with higher earnings yield are considered underpriced, while those with lower earnings yield are seen as overpriced. Earnings yield captures both the tangible and intangible yield of a firm, as opposed to dividend yield, which only takes into account the tangible yield.
Importantly, 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.
Earnings Yield: Simply the Inverse of P/E
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). 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 the comparison of stocks with fixed-income securities.
The Winning Strategy
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.
Our Picks
Here we discuss four of the 131 stocks that qualified the screen:
Albemarle: Charlotte-based Albemarle is a premier specialty chemicals company with leading positions in attractive end markets globally.Albemarle remains focused on strengthening its lithium business and is taking actions to grow its key businesses. It is also expected to gain from synergies of the Rockwood acquisition and cost actions.
The Zacks Consensus Estimate for ALB’s 2022 earnings and sales implies year-over-year growth of 430.7% and 124%, respectively. The 2022 bottom-line estimate has been revised upward by 16 cents a share over the past seven days.
Chevron: California-based Chevron is one of the leading integrated oil and gas companies. The acquisition of Noble Energy has expanded Chevron’s presence in the DJ Basin and the Permian Basin.The takeover is also estimated to generate significant cost savings. The company’s strong financials augur well.
The Zacks Consensus Estimate for CVX’s 2022 earnings and sales implies year-over-year growth of 127.3% and 46%, respectively. The 2022 bottom-line estimate has been revised upward by $1.1 a share over the past seven days.
Jazz: Ireland-based Jazz is a specialty biopharmaceutical company with a focus in the areas of neuroscience and oncology. The acquisition of GW Pharma diversified its commercial portfolio by adding a third high-growth commercial franchise of cannabidiol drugs to the business. Jazz’s revenues continue to benefit from strong demand for newer drugs like Xywav, Epidiolex and Rylaze.
The Zacks Consensus Estimate for JAZZ’s 2022 earnings and sales implies year-over-year growth of 7% and 18%, respectively. The 2022 bottom-line estimate has been revised upward by 2 cents a share over the past seven days.
Cummins: Cummins is the largest engine producer in the world and maintains a diverse global footprint. Its position as a global power leader with dominant market and commitment to moving toward a carbon-neutral future is commendable.The buyout of Meritor positions Cummins as a leading provider of integrated powertrain solutions across internal combustion and electric power applications.
The Zacks Consensus Estimate for CMI’s 2022 earnings and sales implies year-over-year growth of 18.4% and 12%, respectively. The 2022 bottom-line estimate has been revised upward by 2 cents a share over the past seven 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.