Grab These 4 High Earnings Yield Stocks for Solid Returns

Investors often use P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. However, one can also use another interesting ratio. 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 the one with higher earnings yield. This is because stocks with higher earnings yield have the potential of providing comparatively greater returns.

You must have heard of dividend yield (Dividend per share/Market Price), which is one of the standard metrics for valuing stocks. If we substitute dividend per share with earnings, we get the earnings yield. Just like the case with dividend yield, firms with higher earnings yield are considered underpriced, while those with lower earnings yield are seen as overpriced. Earnings yield captures both the tangible and intangible yield of the firm, as opposed to dividend yield, which only takes into account the tangible yield. The ratio of dividend yield to earnings yield indicates the proportion of earnings directly distributed in the form of dividend payout.

Importantly, earnings yield can also be used to compare the performance of a market index with the 10-year Treasury yield. For instance, when the yield of the market index is more than the 10-year Treasury yield, stocks can be considered as undervalued than bonds. 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 Picks

Here are four of the 30 stocks that made it through the screen:

Asbury Automotive Group ABG: One of the largest automotive retailers, Asbury offers an extensive range of automotive products and services, including new and used vehicles and related financing and insurance, vehicle maintenance, as well as repair services. The stock currently carries a Zacks Rank #1. The Zacks Consensus Estimate for 2020 and 2021 earnings suggests year-over-year growth of 5.5% and 22.4%, respectively.

Meritage Homes Corporation MTH: Based in Scottsdale, AZ, Meritage Homes is one of the leading designers and builders of single-family homes. The stock currently carries a Zacks Rank #1 and has an expected EPS growth rate of 18.5% for the next three-five years.

Bristol-Myers Squibb BMY: Bristol-Myers is a one of the leading global specialty biopharmaceutical companies focused on the development of treatments targeting serious diseases. The stock currently carries a Zacks Rank #2 and has an expected EPS growth rate of 8.5% for the next three-five years.

PennyMac Financial Services, Inc. PFSI: Based in California, PennyMac provides financial services primarily in the United States. The company conducts the business in two segments: mortgage banking and investment management. The stock currently carries a Zacks Rank #1.  The Zacks Consensus Estimate for 2020 earnings suggests year-over-year growth of 138%.

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DisclosureOfficers, 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

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Bristol Myers Squibb Company (BMY): Free Stock Analysis Report

Meritage Homes Corporation (MTH): Free Stock Analysis Report

Asbury Automotive Group, Inc. (ABG): Free Stock Analysis Report

PennyMac Financial Services, Inc. (PFSI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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