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4 High Earnings Yield Value Picks to Counter Market Bloodbath
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Market conditions continue to deteriorate amid escalating tensions between Russia and Ukraine. Both Dow and Nasdaq fell for the fifth straight session yesterday, undercutting their year-to-date low levels touched on Jan 24. The tech heavy-index finished the day down 2.6% at 13,037.49, while Dow Jones shed 1.4%. S&P 500 dropped further into the correction territory, falling 1.8% yesterday.
As Russia invades Ukraine, the already shaky market could be in for further turmoil. That might just create some good buying opportunities and it would be wise to invest in some value stocks like Nutrien (NTR - Free Report) , Whiting Petroleum , Crocs (CROX - Free Report) and Silicon Motion (SIMO - Free Report) for long-term gains.
Before that let's delve deeper into the broader tensions that are crippling the stock market.
Geopolitical Tensions & Inflation Concerns to Blame
Yesterday, Russian President Putin began sending troops into the two breakaway regions of eastern Ukraine and the United States and its allies levied sanctions against Russia. U.S. and Germany also halted the certification of the Nord Stream 2 pipeline.
Early today, Putin declared the start of a “special military operation” in Ukraine, aimed at " demilitarization and denazification” of the country. He ordered the invasion of Ukraine and also warned outsiders of severe consequences in the event of any interference. Quoting him, “If you interfere, you will face consequences greater than any you have faced in history. All relevant decisions have been taken. I hope you hear me." President Biden responded,, “Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering.”
Investors are already worried about record inflation and the Fed’s hawkish stance. Several economists and financial experts are concerned that the Fed may hike the rate by 50 basis points four times this year or 25 basis points seven or eight times this year. High oil prices, flirting around $100 a barrel, are only making the inflation concerns grow.
And now with Russia launching a full-scale invasion, global stock markets are set for a further downside. A senior global macro strategist at Truist, Eylem Senyuz, said, “historically military/crisis events tend to inject volatility into markets and often cause a short-term dip, but stocks tend to eventually rebound unless the event pushes the economy into recession.”
Well, time will tell. But investors should brace themselves for further correction amid this full-blown war. When a correction is significant, you could buy anything but you stand to gain the most if you pick value stocks with strong long-term potential.
Value Investing is the Key
Amid such escalating ongoing tensions and uncertainty, value investing could be one of the most effective investment approaches.
Value investing takes a long-term view and seeks to gauge the intrinsic value of the companies based on their fundamental strength, earnings potential and financials. It involves uncovering a firm’s true value, thus helping investors avoid knee-jerk reactions.
The strategy basically seeks to profit from investing in stocks that appear to be trading at a discount to their intrinsic values. Value investors benefit from identifying and buying stocks, which are underestimated by the equity market and are thus trading below their true value, and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect 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, which is nothing but the reciprocal of the P/E ratio, albeit a little more illuminating than the traditional P/E ratio.
Unlock Your Portfolio Value With Earnings Yield
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 — the inverse of the P/E ratio.
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 one with higher earnings yield is considered undervalued, while those with lower earnings yield are seen as overpriced.
Earnings yield has an edge over P/E ratio as the former 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.
Selecting Potential Winners
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 117 stocks that made it through the screen:
Nutrien: This leading integrated provider of crop inputs and services currently sports a Zacks Rank #1. NTR is expected to gain from higher demand for crop nutrients. Strong grower economics and higher crop prices are driving fertilizer demand globally. Higher selling prices are also expected to drive Nutrien’s margins. Cost actions and the adoption of its digital platform should also contribute to its performance.
The Zacks Consensus Estimate for Nutrien’s 2022 earnings and sales suggests year-over-year growth of 62.3% and 15.9%, respectively. NTR surpassed estimates in three of the trailing four quarters, while missing on the other occasion, the average being 60.3%.
Whiting Petroleum: One of the noteworthy oil and natural gas explorers in the United States, Whiting Petroleum currently carries a Zacks Rank #2. Whiting Petroleum is a top-tier operator in North Dakota's Williston Basin, with 478,400 net acres in the region. Apart from its deep drilling inventory, Whiting Petroleum also boasts large undeveloped acres in the form of the core Williston inventory with prospects for development.
The Zacks Consensus Estimate for WLL’s 2022 earnings and sales suggests year-over-year growth of 48.6% and 20.9%, respectively. Whiting Petroleum surpassed estimates in the trailing four quarters, the average being 3,659.3%.
Crocs: Broomfield-based Crocs is one of the most reputed footwear brands focusing on comfort and style. The company is benefiting from solid consumer demand, as well as broad-based growth across all markets, channels and categories.Its focus on product innovation and marketing, digital capabilities and potential gains from the HEYDUDE buyout bode well.
The Zacks Consensus Estimate for CROX’s 2022 earnings and sales suggests year-over-year growth of 22% and 48.6%, respectively. Crocs surpassed estimates in the trailing four quarters, the average being 36%.
Silicon Motion: Carrying a Zacks Rank #2, Silicon Motion is a leading developer of microcontroller ICs for NAND flash storage devices.The company is expanding its SSD controller program engagements with PC OEMs and eMMC/UFS controllers for smartphones, automotive applications and IoT/smart devices. SIMO’s clean balance sheet with no debt obligations augurs well.
The Zacks Consensus Estimate for Silicon Motion’s 2022 earnings and sales suggests year-over-year growth of 26.7% and 25.3%, respectively. SIMO surpassed estimates in the trailing four quarters, the average being 10.4%.
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 Value Picks to Counter Market Bloodbath
Market conditions continue to deteriorate amid escalating tensions between Russia and Ukraine. Both Dow and Nasdaq fell for the fifth straight session yesterday, undercutting their year-to-date low levels touched on Jan 24. The tech heavy-index finished the day down 2.6% at 13,037.49, while Dow Jones shed 1.4%. S&P 500 dropped further into the correction territory, falling 1.8% yesterday.
As Russia invades Ukraine, the already shaky market could be in for further turmoil. That might just create some good buying opportunities and it would be wise to invest in some value stocks like Nutrien (NTR - Free Report) , Whiting Petroleum , Crocs (CROX - Free Report) and Silicon Motion (SIMO - Free Report) for long-term gains.
Before that let's delve deeper into the broader tensions that are crippling the stock market.
Geopolitical Tensions & Inflation Concerns to Blame
Yesterday, Russian President Putin began sending troops into the two breakaway regions of eastern Ukraine and the United States and its allies levied sanctions against Russia. U.S. and Germany also halted the certification of the Nord Stream 2 pipeline.
Early today, Putin declared the start of a “special military operation” in Ukraine, aimed at " demilitarization and denazification” of the country. He ordered the invasion of Ukraine and also warned outsiders of severe consequences in the event of any interference. Quoting him, “If you interfere, you will face consequences greater than any you have faced in history. All relevant decisions have been taken. I hope you hear me." President Biden responded,, “Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering.”
Investors are already worried about record inflation and the Fed’s hawkish stance. Several economists and financial experts are concerned that the Fed may hike the rate by 50 basis points four times this year or 25 basis points seven or eight times this year. High oil prices, flirting around $100 a barrel, are only making the inflation concerns grow.
And now with Russia launching a full-scale invasion, global stock markets are set for a further downside. A senior global macro strategist at Truist, Eylem Senyuz, said, “historically military/crisis events tend to inject volatility into markets and often cause a short-term dip, but stocks tend to eventually rebound unless the event pushes the economy into recession.”
Well, time will tell. But investors should brace themselves for further correction amid this full-blown war. When a correction is significant, you could buy anything but you stand to gain the most if you pick value stocks with strong long-term potential.
Value Investing is the Key
Amid such escalating ongoing tensions and uncertainty, value investing could be one of the most effective investment approaches.
Value investing takes a long-term view and seeks to gauge the intrinsic value of the companies based on their fundamental strength, earnings potential and financials. It involves uncovering a firm’s true value, thus helping investors avoid knee-jerk reactions.
The strategy basically seeks to profit from investing in stocks that appear to be trading at a discount to their intrinsic values. Value investors benefit from identifying and buying stocks, which are underestimated by the equity market and are thus trading below their true value, and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect 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, which is nothing but the reciprocal of the P/E ratio, albeit a little more illuminating than the traditional P/E ratio.
Unlock Your Portfolio Value With Earnings Yield
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 — the inverse of the P/E ratio.
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 one with higher earnings yield is considered undervalued, while those with lower earnings yield are seen as overpriced.
Earnings yield has an edge over P/E ratio as the former 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.
Selecting Potential Winners
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 117 stocks that made it through the screen:
Nutrien: This leading integrated provider of crop inputs and services currently sports a Zacks Rank #1. NTR is expected to gain from higher demand for crop nutrients. Strong grower economics and higher crop prices are driving fertilizer demand globally. Higher selling prices are also expected to drive Nutrien’s margins. Cost actions and the adoption of its digital platform should also contribute to its performance.
The Zacks Consensus Estimate for Nutrien’s 2022 earnings and sales suggests year-over-year growth of 62.3% and 15.9%, respectively. NTR surpassed estimates in three of the trailing four quarters, while missing on the other occasion, the average being 60.3%.
Whiting Petroleum: One of the noteworthy oil and natural gas explorers in the United States, Whiting Petroleum currently carries a Zacks Rank #2. Whiting Petroleum is a top-tier operator in North Dakota's Williston Basin, with 478,400 net acres in the region. Apart from its deep drilling inventory, Whiting Petroleum also boasts large undeveloped acres in the form of the core Williston inventory with prospects for development.
The Zacks Consensus Estimate for WLL’s 2022 earnings and sales suggests year-over-year growth of 48.6% and 20.9%, respectively. Whiting Petroleum surpassed estimates in the trailing four quarters, the average being 3,659.3%.
Crocs: Broomfield-based Crocs is one of the most reputed footwear brands focusing on comfort and style. The company is benefiting from solid consumer demand, as well as broad-based growth across all markets, channels and categories.Its focus on product innovation and marketing, digital capabilities and potential gains from the HEYDUDE buyout bode well.
The Zacks Consensus Estimate for CROX’s 2022 earnings and sales suggests year-over-year growth of 22% and 48.6%, respectively. Crocs surpassed estimates in the trailing four quarters, the average being 36%.
Silicon Motion: Carrying a Zacks Rank #2, Silicon Motion is a leading developer of microcontroller ICs for NAND flash storage devices.The company is expanding its SSD controller program engagements with PC OEMs and eMMC/UFS controllers for smartphones, automotive applications and IoT/smart devices. SIMO’s clean balance sheet with no debt obligations augurs well.
The Zacks Consensus Estimate for Silicon Motion’s 2022 earnings and sales suggests year-over-year growth of 26.7% and 25.3%, respectively. SIMO surpassed estimates in the trailing four quarters, the average being 10.4%.
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.