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4 High Earnings Yield Picks to Lift Your Portfolio Performance
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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 per share — the inverse of the price-to-earnings (P/E) ratio.
While comparing stocks, if other factors are similar, the one with higher earnings yield is considered undervalued. That’s because this metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today.
Earnings yield is not as widely used as the P/E ratio as a valuation metric but investors most commonly 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 the stock is lower than the 10-year Treasury yield, the stock would be considered overvalued relative to bonds. Conversely, if the yield on the stock is higher, it would be considered undervalued.
The Winning Strategy
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 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 are four of the 97 stocks that made it through the screen:
Macy's, Inc. (M - Free Report) : It is one of the nation’s premier omni-channel retailers and currently sports a Zacks Rank #1. The company is in the process of a complete makeover and has outlined plans under the three-year Polaris Strategy to adapt better to the new retail ecosystem. It is banking on Backstage locations, Vendor Direct, Store Pickup, Loyalty Program, Growth150 stores, the mobile first strategy and Destination businesses. The Zacks Consensus Estimate for fiscal 2022 earnings indicates a year-over-year rise of 269.7%.
Meritage Homes Corporation (MTH - Free Report) : Based in Scottsdale, Meritage Homes is one of the leading designers and builders of single-family homes. Its focus on entry-level LiVE.NOW homes has been a major driving factor. Meritage Homes’ strategy of targeting entry-level buyers is expected to boost its performance in the long haul. The Zacks Consensus Estimate for 2021 and 2022 earnings implies year-over-year growth of 72.8% and 20.1%, respectively. The company currently has a Zacks Rank #1.
APA Corporation (APA - Free Report) : One of the largest oil producers in Permian, APA boasts a large geographically diversified reserve base with multi-year trends in reserve replacement. The company’s Suriname portfolio is exciting too, wherein it continues to achieve drilling success. The Zacks Consensus Estimate for 2021 and 2022 earnings suggests year-over-year growth of 464.8% and 17.5%, respectively. The company currently sports a Zacks Rank #1.
Olin Corporation (OLN - Free Report) : Olin is a vertically integrated global producer and distributor of chemical products, and a U.S. maker of ammunition. Olin's strategic investment in the IT project is likely to provide annual cost savings. The company also remains committed to boost shareholders' returns. The Zacks Consensus Estimate for 2021 and 2022 earnings implies year-over-year growth of 740% and 4.6%, respectively. The company currently has a Zacks Rank #1.
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 to Lift Your Portfolio Performance
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 per share — the inverse of the price-to-earnings (P/E) ratio.
While comparing stocks, if other factors are similar, the one with higher earnings yield is considered undervalued. That’s because this metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today.
Earnings yield is not as widely used as the P/E ratio as a valuation metric but investors most commonly 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 the stock is lower than the 10-year Treasury yield, the stock would be considered overvalued relative to bonds. Conversely, if the yield on the stock is higher, it would be considered undervalued.
The Winning Strategy
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 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 Choices
Here are four of the 97 stocks that made it through the screen:
Macy's, Inc. (M - Free Report) : It is one of the nation’s premier omni-channel retailers and currently sports a Zacks Rank #1. The company is in the process of a complete makeover and has outlined plans under the three-year Polaris Strategy to adapt better to the new retail ecosystem. It is banking on Backstage locations, Vendor Direct, Store Pickup, Loyalty Program, Growth150 stores, the mobile first strategy and Destination businesses. The Zacks Consensus Estimate for fiscal 2022 earnings indicates a year-over-year rise of 269.7%.
Meritage Homes Corporation (MTH - Free Report) : Based in Scottsdale, Meritage Homes is one of the leading designers and builders of single-family homes. Its focus on entry-level LiVE.NOW homes has been a major driving factor. Meritage Homes’ strategy of targeting entry-level buyers is expected to boost its performance in the long haul. The Zacks Consensus Estimate for 2021 and 2022 earnings implies year-over-year growth of 72.8% and 20.1%, respectively. The company currently has a Zacks Rank #1.
APA Corporation (APA - Free Report) : One of the largest oil producers in Permian, APA boasts a large geographically diversified reserve base with multi-year trends in reserve replacement. The company’s Suriname portfolio is exciting too, wherein it continues to achieve drilling success. The Zacks Consensus Estimate for 2021 and 2022 earnings suggests year-over-year growth of 464.8% and 17.5%, respectively. The company currently sports a Zacks Rank #1.
Olin Corporation (OLN - Free Report) : Olin is a vertically integrated global producer and distributor of chemical products, and a U.S. maker of ammunition. Olin's strategic investment in the IT project is likely to provide annual cost savings. The company also remains committed to boost shareholders' returns. The Zacks Consensus Estimate for 2021 and 2022 earnings implies year-over-year growth of 740% and 4.6%, respectively. The company currently has a Zacks Rank #1.
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.