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4 High Earnings Yield Value Stocks to Buy as Inflation Rises
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In February, U.S. inflation rose to 3.2%, up from January's 3.1%, fueled by higher petrol and housing prices. These figures are crucial for the projections for 2024 rate cuts, with the Mar 20 meeting likely to maintain rates between 5.25% and 5.5%.
Since 2022, the Fed's aggressive rate hikes have tempered inflation, prompting expectations of interest rate cuts this year. However, recent inflation data (for the first two months of 2024) depicts a hotter-than-expected rise in prices. This has led to revisions in predictions, with calls for the first cut shifting from March to possibly June or later. Proponents of sustained higher rates, aiming for the 2% inflation target, are gaining traction.
Initial market expectations of six rate cuts this year, starting in March, have been revised. Currently, the central bank plans three rate reductions by 2024, possibly commencing in June or July, with a 70% chance of a rate cut by June, according to the CME FedWatch tool.
The Fed awaits steady signs of inflation cooling before implementing rate cuts. Despite the economy's resilience against inflation and borrowing cost hikes, rising prices pose challenges to President Joe Biden's policy agenda, potentially threatening economic stability in the coming months. All eyes are on the March meeting as policymakers navigate these inflationary pressures.
Play Value Investing
In this uncertain landscape, value investing is one of the most prudent strategies. Value investing centers on identifying undervalued assets that have the potential for growth over the long term. It ferrets out fundamentally strong companies with sound financials and a history of resilience that can provide a shield against market turbulence. 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.
Use Earnings Yield Metric
One interesting ratio that you can consider for picking attractively valued stocks is earnings yield. 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.
You can unlock your portfolio value by investing in high earnings yield stocks like Pilgrim's Pride Corporation (PPC - Free Report) , Century Communities, Inc. (CCS - Free Report) , Xerox Holdings Corporation (XRX - Free Report) and Horace Mann Educators (HMN - Free Report) to fetch handsome long-term rewards.
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 27 stocks that qualified the screen:
Pilgrim’s Pride: Headquartered In Colorado, 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 68.6%. Estimates for 2024 earnings per share have moved up by 36 cents over the past 30 days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
Century Communities is a home building and construction company involved in land acquisition, development, entitlements, and the construction, marketing, and sale of diverse single-family residential projects. The Zacks Consensus Estimate for CCS’s 2024 and 2025 earnings implies year-over-year growth of 24.3% and 15%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by $1.28 and $1.95, respectively, over the past 60 days. Century Communities currently sports a Zacks Rank #1 and has a Value Score of B.
Xerox Holdings is engaged in the document management solutions business. Its offerings include printers, copiers, software solutions, managed print services and cloud computing solutions. The Zacks Consensus Estimate for XRX’s 2024 and 2025 earnings implies year-over-year growth of 25% and 8.5%, respectively. The consensus mark for 2024 and 2025 earnings per share has moved up by 21 cents and 20 cents, respectively, over the past 30 days. Xerox Holdings currently sports a Zacks Rank #1 and has a Value Score of A.
Horace Mann is a multiline insurance holding company that targets the U.S. educator market. The Zacks Consensus Estimate for HMN’s 2024 and 2025 earnings implies year-over-year growth of 105% and 19%, respectively. The consensus mark for 2024 and 2025 earnings per share has moved up by 12 cents and 5 cents, respectively, over the past 30 days. Horace Mann 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.
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4 High Earnings Yield Value Stocks to Buy as Inflation Rises
In February, U.S. inflation rose to 3.2%, up from January's 3.1%, fueled by higher petrol and housing prices. These figures are crucial for the projections for 2024 rate cuts, with the Mar 20 meeting likely to maintain rates between 5.25% and 5.5%.
Since 2022, the Fed's aggressive rate hikes have tempered inflation, prompting expectations of interest rate cuts this year. However, recent inflation data (for the first two months of 2024) depicts a hotter-than-expected rise in prices. This has led to revisions in predictions, with calls for the first cut shifting from March to possibly June or later. Proponents of sustained higher rates, aiming for the 2% inflation target, are gaining traction.
Initial market expectations of six rate cuts this year, starting in March, have been revised. Currently, the central bank plans three rate reductions by 2024, possibly commencing in June or July, with a 70% chance of a rate cut by June, according to the CME FedWatch tool.
The Fed awaits steady signs of inflation cooling before implementing rate cuts. Despite the economy's resilience against inflation and borrowing cost hikes, rising prices pose challenges to President Joe Biden's policy agenda, potentially threatening economic stability in the coming months. All eyes are on the March meeting as policymakers navigate these inflationary pressures.
Play Value Investing
In this uncertain landscape, value investing is one of the most prudent strategies. Value investing centers on identifying undervalued assets that have the potential for growth over the long term. It ferrets out fundamentally strong companies with sound financials and a history of resilience that can provide a shield against market turbulence. 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.
Use Earnings Yield Metric
One interesting ratio that you can consider for picking attractively valued stocks is earnings yield. 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.
You can unlock your portfolio value by investing in high earnings yield stocks like Pilgrim's Pride Corporation (PPC - Free Report) , Century Communities, Inc. (CCS - Free Report) , Xerox Holdings Corporation (XRX - Free Report) and Horace Mann Educators (HMN - Free Report) to fetch handsome long-term rewards.
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 27 stocks that qualified the screen:
Pilgrim’s Pride: Headquartered In Colorado, 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 68.6%. Estimates for 2024 earnings per share have moved up by 36 cents over the past 30 days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
Century Communities is a home building and construction company involved in land acquisition, development, entitlements, and the construction, marketing, and sale of diverse single-family residential projects. The Zacks Consensus Estimate for CCS’s 2024 and 2025 earnings implies year-over-year growth of 24.3% and 15%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by $1.28 and $1.95, respectively, over the past 60 days. Century Communities currently sports a Zacks Rank #1 and has a Value Score of B.
Xerox Holdings is engaged in the document management solutions business. Its offerings include printers, copiers, software solutions, managed print services and cloud computing solutions. The Zacks Consensus Estimate for XRX’s 2024 and 2025 earnings implies year-over-year growth of 25% and 8.5%, respectively. The consensus mark for 2024 and 2025 earnings per share has moved up by 21 cents and 20 cents, respectively, over the past 30 days. Xerox Holdings currently sports a Zacks Rank #1 and has a Value Score of A.
Horace Mann is a multiline insurance holding company that targets the U.S. educator market. The Zacks Consensus Estimate for HMN’s 2024 and 2025 earnings implies year-over-year growth of 105% and 19%, respectively. The consensus mark for 2024 and 2025 earnings per share has moved up by 12 cents and 5 cents, respectively, over the past 30 days. Horace Mann 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.