Pick These 4 High Earnings Yield Stocks Right Away
Zacks Investment Research | May 01, 2017 08:54AM ET
Earnings Yield may be a simple yet effective metric to use for investors with exposure to stocks as well as bonds. The ratio is the inverse of the price-to-earnings (P/E) ratio, which is commonly applied to find undervalued stocks. However, when one looks to compare stocks with fixed income securities or the market, earnings yield is a more appropriate ratio.
Earnings Yield is measured as (Annual Earnings per Share/Market Price) x 100. While comparing similar stocks, the one with higher earnings yield is more likely to provide better returns, other factors remain constant.
Moreover, Earnings Yield can be used to compare the performance of a market index with the 10-year Treasury yield. When the yield of the market index is more than the 10-year Treasury yield, stocks can be considered as undervalued in comparison to bonds and vice versa. In such a situation, for value investors, investing in the stock market may be a better option than in the bond market.
However, it is important to remember that T-bills are risk free, while stock investments come with a caveat. It would be a good idea to add a risk premium to the Treasury yield while comparing it with earnings yield of a stock or the overall market.
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.
Here are four of the nine stocks that made it through the screen:
Tech Data Corporation (NASDAQ:TECD) is a leading provider of Internet technology products, logistics management and other value-added services. The company sports a Zacks Rank #1 and its expected EPS growth rate for the next 3–5 years is 22.8%.
Methanex Corporation (NASDAQ:MEOH) is a Vancouver based company engaged in the worldwide production and marketing of methanol. This Zacks Rank #1 stock has an expected EPS growth rate of 15% for the next 3–5 years. You can see Original post
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