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4 High Earnings Yield Picks to Supercharge Your Portfolio Value
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Last month, the Federal Reserve made a notable 50-basis point rate cut, marking its first reduction since March 2020. Investors remain optimistic that the Fed might enact two additional cuts this year, but concerns over a slowing economy have raised doubts about the pace of these reductions. With the U.S. presidential election just weeks away, market volatility is expected to rise. In this climate, value investing could be a sound strategy, allowing investors to buy undervalued stocks and potentially realize substantial returns as prices align with the stocks’ fundamental values.
A commonly used metric to identify undervalued stocks with strong upside potential is the price-to-earnings (P/E) ratio. However, another valuable metric for spotting attractively priced stocks is earnings yield. High earnings yield stocks, such as — Suzano S.A. (SUZ - Free Report) , Mr. Cooper Group Inc. (COOP - Free Report) , IAMGOLD Corp (IAG - Free Report) and Valaris Limited (VAL - Free Report) — offer the potential for substantial long-term gains.
Understanding Earnings Yield Strength
Earnings yield is a critical measure for investors focusing on return rates. Expressed as a percentage, it is calculated by dividing annual earnings per share (EPS) by the market price of the stock. This metric reveals the expected return from earnings for each dollar invested in a stock. When comparing stocks with similar characteristics, those with higher earnings yields are typically viewed as undervalued, while those with lower yields are seen as overpriced.
Although earnings yield is the inverse of the P/E ratio, it offers additional insight, particularly when comparing stocks with fixed-income securities. Investors often compare a stock’s earnings yield to current interest rates, like the 10-year Treasury yield, to assess its return relative to risk-free alternatives. If a stock’s yield is lower than the 10-year Treasury yield, it may be considered overvalued relative to bonds. Conversely, a higher yield suggests undervaluation, making the stock market a more appealing option for value investors.
Screening Parameters
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 30 stocks that made it through the screen:
Suzano produces and sells eucalyptus pulp and paper products. Suzano recently acquired two U.S. paperboard plants, adding 420,000 metric tons to annual capacity and gaining strategic wood, energy and logistical advantages. It also purchased a 15% stake in Lenzing to expand in premium cellulosic fibers. Additionally, Suzano’s $2.8-billion Cerrado project, now operational, boosted eucalyptus pulp capacity by 2.55 million tons, strengthening its pulp market position.
The Zacks Consensus Estimate for 2024 and 2025 EPS implies year-over-year growth of 61% and 110%, respectively. The consensus mark for 2024 and 2025 EPS has been revised upward by $2.08 and $5.98, respectively, over the past 30 days. SUZ currently sports a Zacks Rank #1 and a Value Score of A.
Cooper Group is engaged in non-banking services for mortgage loans. The strategic acquisitions of Home Point Capital Inc. and Roosevelt Management Company, LLC in 2023 will boost the company’s servicing business. COOP is well-placed to leverage its scale (it is one of the largest non-bank mortgage servicers in the United States) and bolster its top-line growth, especially as the Federal Reserve resorts to rate cuts.
The Zacks Consensus Estimate for 2024 and 2025 sales implies year-over-year growth of 19% and 27%, respectively. In the past seven days, the consensus mark for 2024 and 2025 EPS has been revised upward by 19 cents and 2 cents to $10.17 and $13.59, respectively. COOP currently sports a Zacks Rank #1 and has a Value Score of B.
IAMGOLD is an international gold exploration and mining company.The company remains focused on maximizing production, extending the life of its current mines, and advancing development and exploration projects. Key operational projects over the coming years include ramping up Westwood for safe access to mining areas impacted by 2020 seismic activity, as well as mill and plant upgrades, fleet enhancements, optimized water management and pit expansions at Essakane. These initiatives aim to control costs and boost efficiency.
The Zacks Consensus Estimate for 2024 and 2025 sales implies year-over-year growth of 69% and 32%, respectively. In the past seven days, the consensus mark for 2024 and 2025 EPS has been revised upward by 2 cents and 3 cents to 53 cents and 77 cents, respectively. IAG currently sports a Zacks Rank #1 and has a Value Score of A.
Valaris provides offshore drilling services and possesses a varied fleet of rigs, including ultra-deepwater drillships, versatile semisubmersibles, and modern shallow-water jackups. With the industry's largest and highest specification fleet covering both floaters and jackups, Valaris maintains a significant presence in key offshore basins, fostering deep customer relationships. The company's robust balance sheet ensures flexibility in capital allocation.
The Zacks Consensus Estimate for 2024 and 2025 sales implies year-over-year growth of 29% and 25%, respectively. The consensus mark for 2024 and 2025 EPS implies a year-over-year jump of 290% and 156%, respectively. VAL currently carries a Zacks Rank #2 and has a Value Score of B.
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 Supercharge Your Portfolio Value
Last month, the Federal Reserve made a notable 50-basis point rate cut, marking its first reduction since March 2020. Investors remain optimistic that the Fed might enact two additional cuts this year, but concerns over a slowing economy have raised doubts about the pace of these reductions. With the U.S. presidential election just weeks away, market volatility is expected to rise. In this climate, value investing could be a sound strategy, allowing investors to buy undervalued stocks and potentially realize substantial returns as prices align with the stocks’ fundamental values.
A commonly used metric to identify undervalued stocks with strong upside potential is the price-to-earnings (P/E) ratio. However, another valuable metric for spotting attractively priced stocks is earnings yield. High earnings yield stocks, such as — Suzano S.A. (SUZ - Free Report) , Mr. Cooper Group Inc. (COOP - Free Report) , IAMGOLD Corp (IAG - Free Report) and Valaris Limited (VAL - Free Report) — offer the potential for substantial long-term gains.
Understanding Earnings Yield Strength
Earnings yield is a critical measure for investors focusing on return rates. Expressed as a percentage, it is calculated by dividing annual earnings per share (EPS) by the market price of the stock. This metric reveals the expected return from earnings for each dollar invested in a stock. When comparing stocks with similar characteristics, those with higher earnings yields are typically viewed as undervalued, while those with lower yields are seen as overpriced.
Although earnings yield is the inverse of the P/E ratio, it offers additional insight, particularly when comparing stocks with fixed-income securities. Investors often compare a stock’s earnings yield to current interest rates, like the 10-year Treasury yield, to assess its return relative to risk-free alternatives. If a stock’s yield is lower than the 10-year Treasury yield, it may be considered overvalued relative to bonds. Conversely, a higher yield suggests undervaluation, making the stock market a more appealing option for value investors.
Screening Parameters
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 30 stocks that made it through the screen:
Suzano produces and sells eucalyptus pulp and paper products. Suzano recently acquired two U.S. paperboard plants, adding 420,000 metric tons to annual capacity and gaining strategic wood, energy and logistical advantages. It also purchased a 15% stake in Lenzing to expand in premium cellulosic fibers. Additionally, Suzano’s $2.8-billion Cerrado project, now operational, boosted eucalyptus pulp capacity by 2.55 million tons, strengthening its pulp market position.
The Zacks Consensus Estimate for 2024 and 2025 EPS implies year-over-year growth of 61% and 110%, respectively. The consensus mark for 2024 and 2025 EPS has been revised upward by $2.08 and $5.98, respectively, over the past 30 days. SUZ currently sports a Zacks Rank #1 and a Value Score of A.
Cooper Group is engaged in non-banking services for mortgage loans. The strategic acquisitions of Home Point Capital Inc. and Roosevelt Management Company, LLC in 2023 will boost the company’s servicing business. COOP is well-placed to leverage its scale (it is one of the largest non-bank mortgage servicers in the United States) and bolster its top-line growth, especially as the Federal Reserve resorts to rate cuts.
The Zacks Consensus Estimate for 2024 and 2025 sales implies year-over-year growth of 19% and 27%, respectively. In the past seven days, the consensus mark for 2024 and 2025 EPS has been revised upward by 19 cents and 2 cents to $10.17 and $13.59, respectively. COOP currently sports a Zacks Rank #1 and has a Value Score of B.
IAMGOLD is an international gold exploration and mining company.The company remains focused on maximizing production, extending the life of its current mines, and advancing development and exploration projects. Key operational projects over the coming years include ramping up Westwood for safe access to mining areas impacted by 2020 seismic activity, as well as mill and plant upgrades, fleet enhancements, optimized water management and pit expansions at Essakane. These initiatives aim to control costs and boost efficiency.
The Zacks Consensus Estimate for 2024 and 2025 sales implies year-over-year growth of 69% and 32%, respectively. In the past seven days, the consensus mark for 2024 and 2025 EPS has been revised upward by 2 cents and 3 cents to 53 cents and 77 cents, respectively. IAG currently sports a Zacks Rank #1 and has a Value Score of A.
Valaris provides offshore drilling services and possesses a varied fleet of rigs, including ultra-deepwater drillships, versatile semisubmersibles, and modern shallow-water jackups. With the industry's largest and highest specification fleet covering both floaters and jackups, Valaris maintains a significant presence in key offshore basins, fostering deep customer relationships. The company's robust balance sheet ensures flexibility in capital allocation.
The Zacks Consensus Estimate for 2024 and 2025 sales implies year-over-year growth of 29% and 25%, respectively. The consensus mark for 2024 and 2025 EPS implies a year-over-year jump of 290% and 156%, respectively. VAL currently carries a Zacks Rank #2 and has a Value Score of B.
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