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4 High Earnings Yield Stocks to Buy Amid Market Uncertainty
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The recent consumer price index (CPI) data revealed that U.S. inflation is running hotter than anticipated. Prices rose 0.4% in March over the previous month and 3.5% year over year, surpassing forecasts of 0.3% and 3.4%, respectively. The data confirmed concerns that inflation is stickier than expected and lowered expectations for imminent interest rate cuts by the Federal Reserve.
Market predictions for rate cuts in June have shifted significantly since the CPI release. The Fed is determined not to cut rates until it has “gained greater confidence” that inflation is headed back toward 2%. In addition, geopolitical unrest and rising energy costs pose risks that could further escalate inflation.
In this uncertain landscape, value investing is one of the most prudent strategies.This 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. Value stocks, which often provide steady dividend payouts, offer a degree of safety in uncertain market environments.
Using the Earnings Yield Metric
One interesting ratio that you can consider for ferreting out 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 StoneCo Ltd. (STNE - Free Report) , HCI Group Inc. (HCI - Free Report) , Seanergy Maritime Holdings (SHIP - Free Report) and Pilgrim's Pride Corporation (PPC - Free Report) to fetch handsome long-term rewards.
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 we discuss four of the 26 stocks that qualified the screen:
StoneCo: Based in Brazil, this financial technology solutions provider offers an end-to-end cloud-based technology platform to conduct electronic commerce across in-store, online and mobile channels. The Zacks Consensus Estimate for STNE’s 2024 and 2025 earnings implies year-over-year growth of 34% and 11.5%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 11 cents and 19 cents, respectively, over the past 30 days. StoneCo currently sports a Zacks Rank #1 and has a Value Score of B.
HCI Group: Headquartered in Florida, the company is engaged in diverse business activities, including property and casualty insurance, information technology, real estate and reinsurance. The Zacks Consensus Estimate for HCI’s 2024 and 2025 earnings implies year-over-year growth of 39% and 13%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 10 cents and 27 cents, respectively, over the past 30 days. HCI Group currently sports a Zacks Rank #1 and has a Value Score of B.
Seanergy: Headquartered in Greece, the company provides marine dry bulk transportation services through a modern fleet of Capesize vessels. Its operating fleet consists of 17 vessels. The Zacks Consensus Estimate for SHIP’s 2024 and 2025 earnings implies year-over-year growth of 103% and 27%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 59 cents and $1.05, respectively, over the past 30 days. Seanergy currently sports a Zacks Rank #1 and has a Value Score of A.
Pilgrim's Pride: Based 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 and 2025 earnings implies year-over-year growth of 78% and 2.7%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 4 cents each over the past seven days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
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 Stocks to Buy Amid Market Uncertainty
The recent consumer price index (CPI) data revealed that U.S. inflation is running hotter than anticipated. Prices rose 0.4% in March over the previous month and 3.5% year over year, surpassing forecasts of 0.3% and 3.4%, respectively. The data confirmed concerns that inflation is stickier than expected and lowered expectations for imminent interest rate cuts by the Federal Reserve.
Market predictions for rate cuts in June have shifted significantly since the CPI release. The Fed is determined not to cut rates until it has “gained greater confidence” that inflation is headed back toward 2%. In addition, geopolitical unrest and rising energy costs pose risks that could further escalate inflation.
In this uncertain landscape, value investing is one of the most prudent strategies.This 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. Value stocks, which often provide steady dividend payouts, offer a degree of safety in uncertain market environments.
Using the Earnings Yield Metric
One interesting ratio that you can consider for ferreting out 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 StoneCo Ltd. (STNE - Free Report) , HCI Group Inc. (HCI - Free Report) , Seanergy Maritime Holdings (SHIP - Free Report) and Pilgrim's Pride Corporation (PPC - Free Report) to fetch handsome long-term rewards.
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 Picks
Here we discuss four of the 26 stocks that qualified the screen:
StoneCo: Based in Brazil, this financial technology solutions provider offers an end-to-end cloud-based technology platform to conduct electronic commerce across in-store, online and mobile channels. The Zacks Consensus Estimate for STNE’s 2024 and 2025 earnings implies year-over-year growth of 34% and 11.5%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 11 cents and 19 cents, respectively, over the past 30 days. StoneCo currently sports a Zacks Rank #1 and has a Value Score of B.
HCI Group: Headquartered in Florida, the company is engaged in diverse business activities, including property and casualty insurance, information technology, real estate and reinsurance. The Zacks Consensus Estimate for HCI’s 2024 and 2025 earnings implies year-over-year growth of 39% and 13%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 10 cents and 27 cents, respectively, over the past 30 days. HCI Group currently sports a Zacks Rank #1 and has a Value Score of B.
Seanergy: Headquartered in Greece, the company provides marine dry bulk transportation services through a modern fleet of Capesize vessels. Its operating fleet consists of 17 vessels. The Zacks Consensus Estimate for SHIP’s 2024 and 2025 earnings implies year-over-year growth of 103% and 27%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 59 cents and $1.05, respectively, over the past 30 days. Seanergy currently sports a Zacks Rank #1 and has a Value Score of A.
Pilgrim's Pride: Based 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 and 2025 earnings implies year-over-year growth of 78% and 2.7%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 4 cents each over the past seven days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
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.