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5 High Earnings Yield Stocks to Buy as Recession Threat Looms
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Yesterday, the U.S. markets witnessed the biggest drop in two months, with tech and consumer cyclic stocks being the worst hit. The S&P 500 index dipped 2.13% yesterday, marking the sharpest decline since mid-June amid growing concerns regarding an economic downturn and Fed’s hawkish tone. The Dow and Nasdaq fell 1.91% and 2.55%, respectively. It was the single-worst trading day for Nasdaq and Dow since Jun 28 and Jun 16, respectively.
After a reasonably strong start to the third quarter, much of yesterday’s dip could be attributed to worries that the Fed will likely adopt an aggressive stance yet again at the annual Jackson Hole symposium to be held on Friday. The Fed has already jacked up interest rates thrice this year in order to tame the stubborn inflation. Powell is expected to reaffirm his contractionary monetary policy with higher hikes going forward, which is likely to weaken the economy and result in a potential recession.
Moreover, the deepening inversion of the U.S. Treasuries' yield curve is also sending off warning signals. Fears of Europe slipping into recession amid the disruption of energy supplies in the continent also loom large.
High inflation levels and fallout from the Russia-Ukraine war prompted the International Monetary Fund (IMF) to slash the global GDP forecasts for 2022 and 2023 last month. The IMF now projects global economic growth of 3.2% this year, before slowing to 2.9% in 2023. The updated projections mark a downward revision of 0.4 and 0.7 percentage points for 2022 and 2023, respectively, from April forecasts.
Focus on Value Investing With High Earnings Yield Stocks
In such turbulent times, value investing is the key. 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 its intrinsic value to reflect the actual fundamentals.Certainly, the value investment strategy best suits investors with a long-term horizon.
When considering valuation metrics, the first ratio that pops in our minds is the price-to-earnings ratio, given its inherent simplicity. But one can also consider another interesting ratio for picking attractively valued stocks. That is earnings yield. This metric, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price. It 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.
Ingredion Incorporated (INGR - Free Report) , Albemarle Corporation (ALB - Free Report) , Scorpio Tankers Inc. (STNG - Free Report) , Halliburton Company (HAL - Free Report) and Trinity Capital Inc. (TRIN - Free Report) are a few high earnings yield value picks that can fetch handsome rewards.
While P/E enjoys great popularity among value investors, earnings yield could actually prove a better alternative in many cases. While it is essentially a reciprocal of the P/E ratio, the metric 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.
Selection Criteria
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.
Here are the five of the 126 stocks that made it through the screen:
Ingredion: Headquartered in Chicago, Ingredion is an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. The company serves diverse sectors in food, beverage, brewing, pharmaceuticals and other industries.
The Zacks Consensus Estimate for INGR’s 2022 earnings implies year-over-year growth of 9.5%. The consensus mark for EPS has moved north by 11 cents over the past 30 days. The stock currently sports a Zacks Rank #1.
Albemarle: Based in Charlotte, ALB is a premier specialty chemicals company with leading positions in attractive end markets globally. Its highly-engineered specialty chemicals are geared to meet customer requirements across a bevy of end markets including petroleum refining, consumer electronics, energy storage, construction and automotive.
The Zacks Consensus Estimate for Albemarle’s 2022 sales and earnings implies year-over-year growth of 125.4% and 425.7%, respectively. The consensus mark for EPS has moved north by 83 cents over the past seven days. The stock currently sports a Zacks Rank #1.
Scorpio Tankers: Headquartered in Monaco, STNG operates as a shipping company. It has a diversified blue-chip customer base, and provides seaborne transportation of crude oil and other petroleum products worldwide.
The Zacks Consensus Estimate for Scorpio Tankers’ 2022 sales and earnings implies year-over-year growth of 129% and 263%, respectively. The consensus mark for EPS has moved north by $2.77 over the past 30 days. The stock currently sports a Zacks Rank #1.
Halliburton: Texas-based Halliburton is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy, industrial and government sectors. The company operates under two main segments: Completion and Production, and Drilling and Evaluation.
The Zacks Consensus Estimate for Halliburton’s 2022 sales and earnings implies year-over-year growth of 32.3% and 86.1%, respectively. The consensus mark for EPS has moved north by 10 cents over the past 60 days. The stock currently carries a Zacks Rank #2.
Trinity Capital: Based in Phoenix, Trinity Capital is an internally managed business development company. It provides debt, including loans and equipment financing, to growth stage companies, including venture-backed companies and companies with institutional equity investors.
The Zacks Consensus Estimate for Trinity Capital’s 2022 sales and earnings implies year-over-year growth of 62.3% and 43.5%, respectively. The consensus mark for EPS has moved north by 6 cents over the past 30 days. The stock currently carries a Zacks Rank #2.
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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5 High Earnings Yield Stocks to Buy as Recession Threat Looms
Yesterday, the U.S. markets witnessed the biggest drop in two months, with tech and consumer cyclic stocks being the worst hit. The S&P 500 index dipped 2.13% yesterday, marking the sharpest decline since mid-June amid growing concerns regarding an economic downturn and Fed’s hawkish tone. The Dow and Nasdaq fell 1.91% and 2.55%, respectively. It was the single-worst trading day for Nasdaq and Dow since Jun 28 and Jun 16, respectively.
After a reasonably strong start to the third quarter, much of yesterday’s dip could be attributed to worries that the Fed will likely adopt an aggressive stance yet again at the annual Jackson Hole symposium to be held on Friday. The Fed has already jacked up interest rates thrice this year in order to tame the stubborn inflation. Powell is expected to reaffirm his contractionary monetary policy with higher hikes going forward, which is likely to weaken the economy and result in a potential recession.
Moreover, the deepening inversion of the U.S. Treasuries' yield curve is also sending off warning signals. Fears of Europe slipping into recession amid the disruption of energy supplies in the continent also loom large.
High inflation levels and fallout from the Russia-Ukraine war prompted the International Monetary Fund (IMF) to slash the global GDP forecasts for 2022 and 2023 last month. The IMF now projects global economic growth of 3.2% this year, before slowing to 2.9% in 2023. The updated projections mark a downward revision of 0.4 and 0.7 percentage points for 2022 and 2023, respectively, from April forecasts.
Focus on Value Investing With High Earnings Yield Stocks
In such turbulent times, value investing is the key. 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 its intrinsic value to reflect the actual fundamentals.Certainly, the value investment strategy best suits investors with a long-term horizon.
When considering valuation metrics, the first ratio that pops in our minds is the price-to-earnings ratio, given its inherent simplicity. But one can also consider another interesting ratio for picking attractively valued stocks. That is earnings yield. This metric, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price. It 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.
Ingredion Incorporated (INGR - Free Report) , Albemarle Corporation (ALB - Free Report) , Scorpio Tankers Inc. (STNG - Free Report) , Halliburton Company (HAL - Free Report) and Trinity Capital Inc. (TRIN - Free Report) are a few high earnings yield value picks that can fetch handsome rewards.
While P/E enjoys great popularity among value investors, earnings yield could actually prove a better alternative in many cases. While it is essentially a reciprocal of the P/E ratio, the metric 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.
Selection Criteria
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 Picks
Here are the five of the 126 stocks that made it through the screen:
Ingredion: Headquartered in Chicago, Ingredion is an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. The company serves diverse sectors in food, beverage, brewing, pharmaceuticals and other industries.
The Zacks Consensus Estimate for INGR’s 2022 earnings implies year-over-year growth of 9.5%. The consensus mark for EPS has moved north by 11 cents over the past 30 days. The stock currently sports a Zacks Rank #1.
Albemarle: Based in Charlotte, ALB is a premier specialty chemicals company with leading positions in attractive end markets globally. Its highly-engineered specialty chemicals are geared to meet customer requirements across a bevy of end markets including petroleum refining, consumer electronics, energy storage, construction and automotive.
The Zacks Consensus Estimate for Albemarle’s 2022 sales and earnings implies year-over-year growth of 125.4% and 425.7%, respectively. The consensus mark for EPS has moved north by 83 cents over the past seven days. The stock currently sports a Zacks Rank #1.
Scorpio Tankers: Headquartered in Monaco, STNG operates as a shipping company. It has a diversified blue-chip customer base, and provides seaborne transportation of crude oil and other petroleum products worldwide.
The Zacks Consensus Estimate for Scorpio Tankers’ 2022 sales and earnings implies year-over-year growth of 129% and 263%, respectively. The consensus mark for EPS has moved north by $2.77 over the past 30 days. The stock currently sports a Zacks Rank #1.
Halliburton: Texas-based Halliburton is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy, industrial and government sectors. The company operates under two main segments: Completion and Production, and Drilling and Evaluation.
The Zacks Consensus Estimate for Halliburton’s 2022 sales and earnings implies year-over-year growth of 32.3% and 86.1%, respectively. The consensus mark for EPS has moved north by 10 cents over the past 60 days. The stock currently carries a Zacks Rank #2.
Trinity Capital: Based in Phoenix, Trinity Capital is an internally managed business development company. It provides debt, including loans and equipment financing, to growth stage companies, including venture-backed companies and companies with institutional equity investors.
The Zacks Consensus Estimate for Trinity Capital’s 2022 sales and earnings implies year-over-year growth of 62.3% and 43.5%, respectively. The consensus mark for EPS has moved north by 6 cents over the past 30 days. The stock currently carries a Zacks Rank #2.
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.