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4 Best Earnings Yield Value Picks for Your Investment Portfolio
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As inflation subsides and the economy exhibits resilience, the overall macroeconomic situation is becoming clearer. With economists predicting a more stable economic environment, investors can now anticipate a normalization of interest rates. In recent weeks, there has been a noticeable change in investor sentiment, acknowledging the growing possibility of rate cuts. According to the federal funds futures market, traders are actively pricing in higher probabilities of the first interest rate cut occurring in the first half of 2024.
In the realm of investment strategies, one time-tested approach is value investing, which centers around identifying stocks trading below their intrinsic value. This methodology is grounded in the notion that the market frequently misjudges stock prices in the short term, creating opportunities for long-term investors.
A specific facet of value investing that has garnered considerable attention is the pursuit of high earnings yield stocks. This metric is derived by dividing earnings per share (EPS) by the stock price and expressing it as a percentage. Essentially, earnings yield signifies the return on investment an investor could anticipate based on a company's earnings. A high earnings yield suggests that the stock is priced relatively lower compared to its earnings potential.
When assessing stocks, especially if other factors are comparable, investors may prioritize those with a higher earnings yield. The rationale is that stocks with a superior earnings yield have the potential to deliver comparatively higher returns. A few noteworthy stocks possessing high earnings yield include Pilgrim’s Pride Corporation (PPC - Free Report) , Royal Caribbean Cruises Ltd (RCL - Free Report) , Matador Resources Company (MTDR - Free Report) and Goodyear Tire & Rubber Company (GT - Free Report) .
Crucially, earnings yield serves as a valuable tool for comparing the performance of a market index with the 10-year Treasury yield. If the yield of the market index surpasses the 10-year Treasury yield, stocks can be considered undervalued compared to bonds. In such a scenario, opting for investment in the stock market becomes a more attractive proposition for a value investor. It's important to highlight that earnings yield is a significant metric for investors with exposure to both stocks and bonds. In fact, in this context, earnings yield can provide more insightful information than the traditional price-to-earnings (P/E) ratio, as the former facilitates the comparison of stocks with fixed-income securities.
Harnessing the power of value investing through earnings yield enables investors to make well-informed decisions and build a resilient investment portfolio.
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 to generate 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 31 stocks that qualified the screen:
Pilgrim’s Pride: The company engages in the production, processing, marketing and distribution of fresh, frozen, and value-added chicken and pork products to retailers, distributors, and foodservice operators.In late October, PPC reported better-than-expected profits, marking the seventh straight beat for the company that has not missed earnings expectations since late 2021.Pilgrim's Pride’s focus on key customers is a pathway for refining its portfolio and creating competitive advantages over its peers.
The Zacks Consensus Estimate for PPC’s 2024 earnings implies year-over-year growth of 62.4%. Estimates for 2023 and 2024 earnings per share have moved up by 17 cents and 16 cents, respectively, over the past 30 days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
Royal Caribbean: It is a cruise company whose brands primarily serve the contemporary, premium and deluxe segments. In the last reported quarter, the company beat earnings and revenue expectations. The company has been benefiting from solid demand for cruising and acceleration in booking volumes. RCL intends to focus on new innovative ships and onboard experiences to boost its offering and deliver superior yields and margins.The robust liquidity position of the company is another positive.
The Zacks Consensus Estimate for RCL’s 2024 earnings implies year-over-year growth of 37.4%. Estimates for 2023 and 2024 earnings per share have moved up by 13 cents and 18 cents, respectively, over the past 30 days. Royal Caribbean currently sports a Zacks Rank #1 and has a Value Score of B.
Matador: It is one of the leading upstream players, having a strong foothold in prolific oil and natural gas shale and other unconventional plays. The company delivered earnings and sales beat in the last reported quarter. Matador plans to turn to sales a net of 100 wells this year, including operated and non-operated wells. Its prime priorities include lowering debt, delivering free cashflows and maintaining or increasing dividends. The upbeat production guidance of the company sparks optimism.
The Zacks Consensus Estimate for MTDR’s 2024 earnings implies year-over-year growth of 33.3%. Estimates for 2023 and 2024 earnings per share have moved up by 10 cents and 7 cents, respectively, over the past 30 days. Matador currently sports a Zacks Rank #1 and has a Value Score of B.
Goodyear: This is one of the largest tire companies in the world. The acquisition of Cooper Tire is driving Goodyear's prospects. Goodyear handily beat earnings estimates in the last reported quarter. GT’s transformative plan— dubbed Goodyear Forward— aims to optimize the company's portfolio, enhance margins, reduce leverage and unlock significant value for shareholders. Positioned for substantial growth, Goodyear targets a doubled operating margin, moving from nearly 5% in 2023 to 10% by the end of 2025.
The Zacks Consensus Estimate for GT’s 2024 earnings implies year-over-year growth of 2,761.6%. Estimates for 2023 have improved from a loss of 8 cents per share to a profit of 5 cents over the last 30 days. EPS estimates for 2024 have moved north by 13 cents to $1.43/share over the same timeframe. Goodyear currently carries a Zacks Rank #2 and has a Value Score of A.
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 Best Earnings Yield Value Picks for Your Investment Portfolio
As inflation subsides and the economy exhibits resilience, the overall macroeconomic situation is becoming clearer. With economists predicting a more stable economic environment, investors can now anticipate a normalization of interest rates. In recent weeks, there has been a noticeable change in investor sentiment, acknowledging the growing possibility of rate cuts. According to the federal funds futures market, traders are actively pricing in higher probabilities of the first interest rate cut occurring in the first half of 2024.
In the realm of investment strategies, one time-tested approach is value investing, which centers around identifying stocks trading below their intrinsic value. This methodology is grounded in the notion that the market frequently misjudges stock prices in the short term, creating opportunities for long-term investors.
A specific facet of value investing that has garnered considerable attention is the pursuit of high earnings yield stocks. This metric is derived by dividing earnings per share (EPS) by the stock price and expressing it as a percentage. Essentially, earnings yield signifies the return on investment an investor could anticipate based on a company's earnings. A high earnings yield suggests that the stock is priced relatively lower compared to its earnings potential.
When assessing stocks, especially if other factors are comparable, investors may prioritize those with a higher earnings yield. The rationale is that stocks with a superior earnings yield have the potential to deliver comparatively higher returns. A few noteworthy stocks possessing high earnings yield include Pilgrim’s Pride Corporation (PPC - Free Report) , Royal Caribbean Cruises Ltd (RCL - Free Report) , Matador Resources Company (MTDR - Free Report) and Goodyear Tire & Rubber Company (GT - Free Report) .
Crucially, earnings yield serves as a valuable tool for comparing the performance of a market index with the 10-year Treasury yield. If the yield of the market index surpasses the 10-year Treasury yield, stocks can be considered undervalued compared to bonds. In such a scenario, opting for investment in the stock market becomes a more attractive proposition for a value investor. It's important to highlight that earnings yield is a significant metric for investors with exposure to both stocks and bonds. In fact, in this context, earnings yield can provide more insightful information than the traditional price-to-earnings (P/E) ratio, as the former facilitates the comparison of stocks with fixed-income securities.
Harnessing the power of value investing through earnings yield enables investors to make well-informed decisions and build a resilient investment portfolio.
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 to generate 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 31 stocks that qualified the screen:
Pilgrim’s Pride: The company engages in the production, processing, marketing and distribution of fresh, frozen, and value-added chicken and pork products to retailers, distributors, and foodservice operators.In late October, PPC reported better-than-expected profits, marking the seventh straight beat for the company that has not missed earnings expectations since late 2021.Pilgrim's Pride’s focus on key customers is a pathway for refining its portfolio and creating competitive advantages over its peers.
The Zacks Consensus Estimate for PPC’s 2024 earnings implies year-over-year growth of 62.4%. Estimates for 2023 and 2024 earnings per share have moved up by 17 cents and 16 cents, respectively, over the past 30 days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
Royal Caribbean: It is a cruise company whose brands primarily serve the contemporary, premium and deluxe segments. In the last reported quarter, the company beat earnings and revenue expectations. The company has been benefiting from solid demand for cruising and acceleration in booking volumes. RCL intends to focus on new innovative ships and onboard experiences to boost its offering and deliver superior yields and margins.The robust liquidity position of the company is another positive.
The Zacks Consensus Estimate for RCL’s 2024 earnings implies year-over-year growth of 37.4%. Estimates for 2023 and 2024 earnings per share have moved up by 13 cents and 18 cents, respectively, over the past 30 days. Royal Caribbean currently sports a Zacks Rank #1 and has a Value Score of B.
Matador: It is one of the leading upstream players, having a strong foothold in prolific oil and natural gas shale and other unconventional plays. The company delivered earnings and sales beat in the last reported quarter. Matador plans to turn to sales a net of 100 wells this year, including operated and non-operated wells. Its prime priorities include lowering debt, delivering free cashflows and maintaining or increasing dividends. The upbeat production guidance of the company sparks optimism.
The Zacks Consensus Estimate for MTDR’s 2024 earnings implies year-over-year growth of 33.3%. Estimates for 2023 and 2024 earnings per share have moved up by 10 cents and 7 cents, respectively, over the past 30 days. Matador currently sports a Zacks Rank #1 and has a Value Score of B.
Goodyear: This is one of the largest tire companies in the world. The acquisition of Cooper Tire is driving Goodyear's prospects. Goodyear handily beat earnings estimates in the last reported quarter. GT’s transformative plan— dubbed Goodyear Forward— aims to optimize the company's portfolio, enhance margins, reduce leverage and unlock significant value for shareholders. Positioned for substantial growth, Goodyear targets a doubled operating margin, moving from nearly 5% in 2023 to 10% by the end of 2025.
The Zacks Consensus Estimate for GT’s 2024 earnings implies year-over-year growth of 2,761.6%. Estimates for 2023 have improved from a loss of 8 cents per share to a profit of 5 cents over the last 30 days. EPS estimates for 2024 have moved north by 13 cents to $1.43/share over the same timeframe. Goodyear currently carries a Zacks Rank #2 and has a Value Score of A.
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.