Here’s Why You Should Own These 4 High Earnings Yield Stocks

Here's Why You Should Own These 4 High Earnings Yield Stocks

Of late, the stock market has been quite volatile amid concerns over the Russia-Ukraine crisis, oil prices and inflation. With the overall investment environment seeming a bit precarious now, investors might be tempted to stay away from the market. This might be especially true for novice investors who may want to sit on the sidelines and hang tight for a better chance to put money into the market when it seems safer. But volatility is inevitable and timing the markets is difficult. In situations of extreme volatility, value investing could be one of the most-effective investment approaches.

Value investing takes a long-term view and seeks to spot stocks that appear to be trading below their intrinsic value. Whilethe P/E ratio is one of the most widely used valuation metric to pick undervalued stocks with solid upside potential, there’s another interesting and effective yet less popular ratio—earnings yield—which can be used to pick undervalued stocks with solid upside potential. Marathon Oil Corporation MRO , Nutrien Limited NTR , Pilgrim’s Pride Corporation PPC and Cabot Corporation CBT are some stocks that boast high earnings yield. Earnings Yield: Inverse of P/E With an Added Advantage

Earnings yield, expressed in percentage, is calculated as (Annual Earnings per Share/Market Price) x 100. While comparing stocks, if other factors are similar, investors can look out for stocks with higher earnings yield. This is because stocks with higher earnings yield have the potential of providing comparatively greater returns.

While earnings yield is a reciprocal of the P/E ratio, it should be noted that the former has more functionality than the latter. What if one wants to compare stock performance with other asset classes including bonds, government securities and fixed deposits? In such scenarios, earnings yield is more illuminating than the traditional P/E ratio as the former facilitates the comparison of stocks with fixed-income securities.

Investors often 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 the bond market.

It is also 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 the earnings yield of a stock or the overall market. Screening Criteria

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

Here we discuss four of the 134 stocks that qualified the screen:

Marathon Oil : Texas-based Marathon Oil is one of the noteworthy oil and natural gas producers with operations in the United States and Africa. The wells drilled by Marathon Oil have extremely low oil price breakeven costs and need oil prices of just $35 a barrel to be profitable.MRO’s robust operational metrics should support strong long-term cash flows.Marathon continues to cut down costs substantially and was able to achieve a 4% decrease in production costs in 2021 compared to the 2020 levels.

In the last reported quarter, Marathon reported a comprehensive beat on both counts, thanks to stronger liquids price realizations and better-than-expected domestic production. The company is targeting production in the range of 340,000 BOE/d to 350,000 barrels of oil equivalent per day in 2022.

Marathon Oil surpassed estimates in the last four quarters, the average being 37.4%. The Zacks Consensus Estimate for its 2022 earnings has improved 16 cents over the past seven days to $3.04 per share, implying year-over-year growth of 94%. Shares of MRO have rallied 41% year to date. The stock currently carries a Zacks Rank #1.


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