Yahoo Finance 5 Top High Earnings Yield Picks Amid Banking & Economic Woes
The mood of the U.S. stock market is currently filled with ambiguity as investors grapple with a weakening economy and concerns about the banking sector, despite some optimism sparked by positive developments in the technology sector.
The tech-heavy Nasdaq managed to close slightly higher yesterday, thanks to strong Microsoft Corp. results that provided a boost to technology shares. However, the banking sector's woes have dampened the excitement surrounding the recent earnings reports of Big Tech companies.
The recent unease among investors stems from the health of the banking sector, which was brought into question after the regional First Republic Bank reported a significant drop in deposits. This news compounded concerns raised by the closure of Silicon Valley Bank in the previous month, adding to the overall uncertainty about the financial system's stability.
This uncertain landscape has left investors searching for a clear direction on the economy and companies' future prospects. Although several positive earnings reports have been released, market participants are realizing that these isolated instances of good news are not enough to provide a definitive outlook on the path forward.
The Power of Value Investing
During periods of uncertainty, adopting a value-investing strategy can be highly effective. This approach involves taking a long-term perspective and evaluating companies based on their fundamental strength, earnings potential and financials to determine their intrinsic value. By investing in stocks that are trading at a discount to their intrinsic values, the value investing approach aims to generate substantial returns as the stock price eventually rises to reflect the company's true worth.
The value investing approach involves holding onto stocks for a long period of time, often several years. This long-term perspective allows investors to ride out short-term fluctuations in the market and benefit from the company's growth and success over time. While it may not provide quick gains like speculative investments, value investing has consistently outperformed the market over the years, and has the potential to generate significant wealth for investors who are patient and disciplined.
One of the most common valuation metrics to pick undervalued stocks with solid upside potential is the P/E ratio. However, there’s another interesting ratio that you can consider for ferreting out attractively valued stocks. And that is earnings yield. One could invest in high earnings yield stocks like Vistra Energy Corp. VST, Tecnoglass, Inc. TGLS, Primerica, Inc. PRI, Urban Outfitters Inc. URBN and Service Properties Trust SVC to fetch handsome long-term rewards.
Unleash the Potential of Earnings Yield
One of the strategies that have gained popularity among value investors is the earnings yield strategy. Earnings yield is the ratio of earnings per share to the current stock price. Picking stocks with high earnings yield can be beneficial for investors because it indicates that the company is generating strong profits relative to its current stock price. A high earnings yield means that the stock is undervalued in the market, which can present a buying opportunity for investors.
The earnings yield strategy is an effective way to identify companies that are generating strong profits but may be undervalued in the market due to various factors such as economic conditions or industry trends. By focusing on earnings yield, investors can identify companies that have the potential to grow in the long term, even if the market may not be reflecting their true value. This can provide investors with a competitive advantage in identifying opportunities that may be overlooked by other investors.
And although earnings yield is a 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.
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 five of the 45 stocks that made it through the screen:
Vistra offers electricity and power generation, distribution and transmission solutions. The Zacks Consensus Estimate for its 2023 sales and earnings implies year-over-year growth of 9.5% and 193.2%, respectively. Over the past 60 days, the consensus mark for 2023 EPS has been revised upward by 10 cents. VST currently sports a Zacks Rank #1.
Tecnoglass is engaged in manufacturing and selling architectural glass and windows and aluminum products for the residential and commercial construction industries. The Zacks Consensus Estimate for its 2023 sales and earnings implies year-over-year growth of 13.4% and 15.4%, respectively. Over the past 60 days, the consensus mark for 2023 EPS has been revised upward by 37 cents. TGLS currently sports a Zacks Rank #1.
Primerica is the second-largest issuer of term-life insurance coverage in North America. The Zacks Consensus Estimate for its 2023 sales and earnings implies year-over-year growth of 4% and 32.6%, respectively. Over the past 60 days, the consensus mark for 2023 EPS has been revised upward by $1.64. PRI currently sports a Zacks Rank #1.
Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. The Zacks Consensus Estimate for its 2023 sales and earnings implies year-over-year growth of 4.2% and 42.3%, respectively. Over the past 60 days, the consensus mark for 2023 EPS has been revised upward by 20 cents. URBN currently sports a Zacks Rank #1.
Service Properties is a real estate investment trust, which buys, owns and leases hotels primarily in the United States. The Zacks Consensus Estimate for its 2023 sales and earnings implies year-over-year growth of 1.3% and 26%, respectively. Over the past 60 days, the consensus mark for 2023 EPS has been revised upward by 15 cents. SVC currently sports a Zacks Rank #1.
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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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Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report
Primerica, Inc. (PRI) : Free Stock Analysis Report
Tecnoglass Inc. (TGLS) : Free Stock Analysis Report
Vistra Corp. (VST) : Free Stock Analysis Report
Service Properties Trust (SVC) : Free Stock Analysis Report
