Back to top

Image: Bigstock

4 Stocks with Strong Earnings Yield to Buy Now

Read MoreHide Full Article

Investors often use P/E ratio and other valuation metrics while picking undervalued stocks with solid upside potential. However, it is difficult to use the P/E ratio to compare stocks with fixed income securities. This is where its inverse – Earnings Yield – becomes useful.

Earnings yield is calculated as (Annual Earnings per Share/Market Price) x 100. While comparing similar stocks, the one with the higher earnings yield has the potential to provide comparatively greater returns.

You can use Earnings Yield to compare a stock with other stocks and with fixed income securities. It can also be used to compare the overall 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 undervalued than bonds. In this situation, investing in the stock market would be a better option for a value investor.

However, the risk-free nature of T-bills makes it necessary to add a risk premium to their yield while making comparisons with a stock or the overall market.

The Winning Strategy

We have set Earnings Yield greater than 10% as our primary screening criterion, but it alone cannot be used for selecting 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 $5.00.

Buy-Rated Stocks: Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have been known to outperform their peers in any type of market environment.

Here are four of the nine stocks that made it through the screen:

Trinseo SA (TSE - Free Report) is a global materials company and manufacturer of plastics, latex and rubber. The company carries a Zacks Rank #1. Its expected EPS growth rate for 3–5 years is 5.7%.

KB Home (KBH - Free Report) is a well-known homebuilder in the United States. The company carries a Zacks Rank #1 and its expected EPS growth rate for the next 3–5 years is 27.9%.

Blucora, Inc. , formerly known as InfoSpace, Inc., is engaged in providing Internet-based solutions for consumers and business partners. This Zacks Rank #2 company has an expected EPS growth rate of 20% for the next 3–5 years.

Korea Electric Power Corp. (KEP - Free Report) is an integrated electric utility engaged in the generation, transmission, distribution of electricity and development of electric power resources in South Korea. This Zacks Rank #1 stock has an expected EPS growth rate of 25% for the next 3–5 years.

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.

Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »


Unique Zacks Analysis of Your Chosen Ticker


Pick one free report - opportunity may be withdrawn at any time


Korea Electric Power Corporation (KEP) - $25 value - yours FREE >>

KB Home (KBH) - $25 value - yours FREE >>

Trinseo PLC (TSE) - $25 value - yours FREE >>