These High Earnings Yield Stocks Could Yield Huge Returns
Investors often use P/E ratio and other valuation metrics while picking undervalued stocks with solid upside potential. However, it is difficult to use the P/E ratio to compare stocks with fixed income securities. This is where earnings yield comes handy.
Earnings yield is calculated as (Annual Earnings per Share/Market Price) x 100. In other words, it is the inverse of the P/E ratio.
Other things remaining constant, a stock with higher earnings yield has the potential of providing comparatively greater returns. This metric is used to compare the performance of a market index with the 10-year Treasury yield as well.
For instance, if the yield of the market index is more than the 10-year Treasury, stocks can be considered as undervalued in comparison to bonds. In such a case, investing in the stock market would be a better option for a value investor.
However, given the risk-free nature of T-bills, it would be prudent to add a risk premium to their yield while comparing with a stock or the market index.
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 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 are five of the 36 stocks that made it through the screen:
LG Display Co., Ltd. LPL: This South-Korea based firm manufactures and sells thin film transistor liquid crystal and organic light emitting diode display panels. The stock currently sports a Zacks Rank #1 and has a Value Score of A. The company’s expected EPS growth rate for the next three to five years is 32.6%.
Dow Inc. DOW: Based in Michigan, Dow is a material science company that provides a world-class portfolio of advanced, sustainable and leading-edge products. Its expected EPS growth rate for the next three to five years is 27.7%. Dow presently flaunts a Zacks Rank #1 and has a Value Score of B.
Eagle Bulk Shipping Inc. EGLE: This Zacks Rank #1 company engages in ocean transportation of dry bulk cargoes across the world. The Zacks Consensus Estimate for the- firm’s 2021 earnings and sales implies year-over-year growth of 238.5% and 72.2%, respectively.
Hancock Whitney Corporation HWC: This bank holding company has a Zacks Rank #1 and a VGM Score of B. The company’s expected EPS growth rate for the next three to five years is 8%.
Franchise Group, Inc. FRG: U.S.-based Franchise Group operates as a retailer, franchisor operator and acquirer of franchised as well as franchisable businesses. The company, which carries a Zacks Rank #2 and a Value Score of B, has a long-term expected EPS growth rate of 15%.
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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.
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Dow Inc. (DOW) : Free Stock Analysis Report
Franchise Group, Inc. (FRG) : Free Stock Analysis Report
LG Display Co., Ltd. (LPL) : Free Stock Analysis Report
Eagle Bulk Shipping Inc. (EGLE) : Free Stock Analysis Report
Hancock Whitney Corporation (HWC) : Free Stock Analysis Report
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