4 High Earnings Yield Stocks For Marvelous Gains

For investors wanting to gain exposure to stocks as well as bonds, a simple yet effective measure to use is earnings yield. The ratio is an inverse of the price-to-earnings (P/E) ratio, which is usually utilized to find undervalued stocks. However, for the comparison of stocks with fixed income securities or the market at large, earnings yield may prove to be more apt.

Earnings yield is calculated as (Annual Earnings per Share/Market Price) x 100. Stocks with higher earnings yield are expected to offer better returns.

Earnings yield may also be used to compare the performance of a market index with the 10-year Treasury yield. The market index is considered undervalued compared to the 10-year Treasury bill when market yield is higher than that of bond. In such a situation, value investors may choose to invest in the stock market rather than the 10-year Treasury bill.

However, investors must remember that T-bills are risk free, while stock investments come with a caveat. Thus, 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 eight stocks that made it through the screen:

Western Digital Corporation (NASDAQ:WDC) designs, develops, manufactures and markets a broad line of hard drives featuring leading-edge technology. The company sports a Zacks Rank #1 and its expected EPS growth rate for the next 3–5 years is 4.8%.

POSCO (NYSE:PKX) manufactures hot and cold rolled steel products, heavy plate and other steel products for construction and shipbuilding industries. The company holds a Zacks Rank #2 and its expected EPS growth rate for the next 3–5 years is 5%.You can see the complete list of today’s Zacks #1 Rank stocks here.

Mobile TeleSystems OJSC (NYSE:MBT) aims to build an integrated mobile communications world, which will bring people together, both at work and home. This Zacks Rank #1 company has an expected EPS growth rate of 10.9% for the next 3–5 years.

Volkswagen (DE:VOWG_p) AG (OTC:VLKAY) is the largest automobile manufacturer in Europe. This Zacks Rank #2 company has an expected EPS growth rate of 18% for the next 3–5 years.

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.

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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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