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4 High Earnings Yield Picks to Make the Most of the Market Now
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The U.S. stock market experienced its third consecutive month of decline in October, with both the S&P 500 and Dow Jones indices marking their first three-month losing streak since March 2020. As November historically tends to be a robust month for the markets, investors are hopeful of a seasonal boost to support a year-end rally.
During the Federal Open Market Committee's (FOMC) latest meeting, the Federal Reserve maintained the benchmark lending rate steady at 5.25-5.5%. This represented the second consecutive meeting without a rate hike after a series of 11 rate increases, including four in 2023. Fed Chairman Jerome Powell noted that the higher interest rates are producing the intended effects, but there is still a long way to go to achieve the 2% inflation target.
Last week’s decision to halt rate hikes comes despite inflation decelerating from the previous year's highs and a labor market that remains robust. The Fed is cautious, recognizing that inflation risks from rising gas prices and strong economic activity may necessitate future rate hikes. But it is also mindful of the potential for an economic slowdown driven by higher interest rates, which could accelerate the shift toward rate cuts.
Play Value Investing With Earnings Yield Metric
In the prevailing market scenario, value investing should be one of the most effective investment approaches. It takes a long-term view and seeks to gauge the intrinsic value of companies based on their fundamental strength, earnings potential and financials. 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 that value, reflecting the actual fundamentals.
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.
One could invest in high earnings yield stocks like Pilgrim’s Pride Corporation (PPC - Free Report) , G-III Apparel Group, Ltd. (GIII - Free Report) , Ramaco Resources Inc. (METC - Free Report) and REV Group, Inc. (REVG - Free Report) to fetch handsome long-term rewards.
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. 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 ones with higher earnings yield are considered undervalued, while those with lower earnings yield are seen as overpriced.
While earnings yield is nothing but the reciprocal of the P/E ratio, it is albeit a little more illuminating than the traditional P/E ratio as it 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.
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 four of the 36 stocks that made it through the screen:
Pilgrim’s Pride is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. The Zacks Consensus Estimate for PPC’s 2024 earnings implies year-over-year growth of 70.6%. Estimates for 2023 and 2024 earnings per share have moved up by 12 cents and 22 cents, respectively, over the past 30 days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. The Zacks Consensus Estimate for GII’s fiscal 2024 earnings implies year-over-year growth of 14.7%. Estimates for fiscal 2024 and 2025 earnings per share have moved up by 41 cents and 35 cents, respectively, over the past 60 days. The stock currently sports a Zacks Rank #1 and has a Value Score of A.
Ramaco is an operator and developer of metallurgical coal primarily in southern West Virginia, southwestern Virginia and southwestern Pennsylvania. The Zacks Consensus Estimate for METC’s 2024 earnings implies year-over-year growth of 32.1%. Estimates for 2023 and 2024 earnings per share have moved up by 17 cents and 28 cents, respectively, over the past 30 days. The stock currently sports a Zacks Rank #1 and has a Value Score of B.
REV Group designs, manufactures and distributes specialty vehicles, and related aftermarket parts and services. The Zacks Consensus Estimate for REVG’s fiscal 2024 earnings implies year-over-year growth of 32.5%. Estimates for fiscal 2023 and 2024 earnings per share have moved up by 20 cents and 23 cents, respectively, over the past 60 days. The stock currently sports a Zacks Rank #1 and has a Value Score of B.
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: Bigstock
4 High Earnings Yield Picks to Make the Most of the Market Now
The U.S. stock market experienced its third consecutive month of decline in October, with both the S&P 500 and Dow Jones indices marking their first three-month losing streak since March 2020. As November historically tends to be a robust month for the markets, investors are hopeful of a seasonal boost to support a year-end rally.
During the Federal Open Market Committee's (FOMC) latest meeting, the Federal Reserve maintained the benchmark lending rate steady at 5.25-5.5%. This represented the second consecutive meeting without a rate hike after a series of 11 rate increases, including four in 2023. Fed Chairman Jerome Powell noted that the higher interest rates are producing the intended effects, but there is still a long way to go to achieve the 2% inflation target.
Last week’s decision to halt rate hikes comes despite inflation decelerating from the previous year's highs and a labor market that remains robust. The Fed is cautious, recognizing that inflation risks from rising gas prices and strong economic activity may necessitate future rate hikes. But it is also mindful of the potential for an economic slowdown driven by higher interest rates, which could accelerate the shift toward rate cuts.
Play Value Investing With Earnings Yield Metric
In the prevailing market scenario, value investing should be one of the most effective investment approaches. It takes a long-term view and seeks to gauge the intrinsic value of companies based on their fundamental strength, earnings potential and financials. 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 that value, reflecting the actual fundamentals.
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.
One could invest in high earnings yield stocks like Pilgrim’s Pride Corporation (PPC - Free Report) , G-III Apparel Group, Ltd. (GIII - Free Report) , Ramaco Resources Inc. (METC - Free Report) and REV Group, Inc. (REVG - Free Report) to fetch handsome long-term rewards.
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. 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 ones with higher earnings yield are considered undervalued, while those with lower earnings yield are seen as overpriced.
While earnings yield is nothing but the reciprocal of the P/E ratio, it is albeit a little more illuminating than the traditional P/E ratio as it 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.
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 four of the 36 stocks that made it through the screen:
Pilgrim’s Pride is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. The Zacks Consensus Estimate for PPC’s 2024 earnings implies year-over-year growth of 70.6%. Estimates for 2023 and 2024 earnings per share have moved up by 12 cents and 22 cents, respectively, over the past 30 days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. The Zacks Consensus Estimate for GII’s fiscal 2024 earnings implies year-over-year growth of 14.7%. Estimates for fiscal 2024 and 2025 earnings per share have moved up by 41 cents and 35 cents, respectively, over the past 60 days. The stock currently sports a Zacks Rank #1 and has a Value Score of A.
Ramaco is an operator and developer of metallurgical coal primarily in southern West Virginia, southwestern Virginia and southwestern Pennsylvania. The Zacks Consensus Estimate for METC’s 2024 earnings implies year-over-year growth of 32.1%. Estimates for 2023 and 2024 earnings per share have moved up by 17 cents and 28 cents, respectively, over the past 30 days. The stock currently sports a Zacks Rank #1 and has a Value Score of B.
REV Group designs, manufactures and distributes specialty vehicles, and related aftermarket parts and services. The Zacks Consensus Estimate for REVG’s fiscal 2024 earnings implies year-over-year growth of 32.5%. Estimates for fiscal 2023 and 2024 earnings per share have moved up by 20 cents and 23 cents, respectively, over the past 60 days. The stock currently sports a Zacks Rank #1 and has a Value Score of B.
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.