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5 High Earnings Yield Stocks for Superior Returns

Investors often use the P/E ratio and other valuation metrics to pick undervalued stocks with solid upside potential. 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 stocks with higher earnings yield. This is because stocks with higher earnings yield have the potential to provide comparatively greater returns. Ralph Lauren RL, Graphic Packaging GPK, CNH Industrial CNHI, Halliburton HAL and Urban Outfitters URBN are some stocks boasting high 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 a firm, as opposed to dividend yield, which only takes into account the tangible yield.

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.

Earnings Yield: Simply the Inverse of P/E

Earnings yield is nothing but the reciprocal of one of the most popular valuation metrics, i.e., the P/E ratio (stock price/earnings per share). In fact, as the concept of earnings yield is already indirectly captured in the P/E ratio, earnings yield as an investment valuation metric is not as widely used as the P/E ratio.

Having said that, it should be noted that earnings yield is an important tool for investors with exposure to both stocks and bonds. In fact, with regard to this, earnings yield can be more illuminating than the traditional P/E ratio, as the former facilitates the comparison of stocks with fixed-income securities.

The Winning Strategy

We have set an 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 we discuss five of the 76 stocks that qualified the screen:

Ralph Lauren: Ralph Laurenis a major designer, marketer and distributor of premium lifestyle products. RL offers products in apparel, footwear, accessories, home furnishings and other licensed product categories.Ralph Lauren has been gaining from brand strength, solid demand and expansion across all channels and regions. The company’s strategy of product elevation, acquisition of full-priced consumers, favorable channel and geographic mix, as well as expansion of digital and omni-channel capabilities augur well.

The Zacks Consensus Estimate for RL’s fiscal 2024 earnings suggests year-over-year growth of 14%. The consensus mark for Ralph Lauren’s fiscal 2024 EPS has been revised upward by 39 cents in the past 30 days. The company surpassed estimates in each of the four trailing quarters, the average surprise being 23.6%. The stock currently carries a Zacks Rank #1 and has a VGM Score of B.

Graphic Packaging is a sustainable paper and fiber-based packaging firm with a portfolio that services companies in beverages, foodservice, personal care, household products, pets, and beyond. Graphic Packaging made a big strategic acquisition in 2021 and bought AR Packaging, thereby expanding its reach to Europe. Innovation and more circular consumer-packaging solutions are consistently driving GPK’s organic sales growth.

The Zacks Consensus Estimate for GPK’s 2023 earnings suggests year-over-year growth of 17.6%. The consensus mark for Graphic Packaging’s 2023 EPS has been revised upward by 19 cents in the past 30 days. The company surpassed estimates in each of the four trailing quarters, the average surprise being 14.25%. The stock currently sports a Zacks Rank #1 and has a VGM Score of A.

CNH Industrial: CNH Industrial is one of the leading equipment and services companies engaged in the manufacture and sale of agricultural and construction equipment. Raven Industries and Sampierana buyouts are set to bolster the prospects of CNH Industrial's Agriculture and Construction segments, respectively. Minority stakes in Stout Industrial Technology & EarthOptics will position CNHI as a developer and provider of futuristic technology in the industry.

The Zacks Consensus Estimate for CNHI’s 2023 earnings suggests year-over-year growth of 16.4%. The consensus mark for CNH Industrial’s 2023 EPS has been revised upward by 8 cents in the past 60 days. The company surpassed estimates in each of the four trailing quarters, the average surprise being 14.1%. The stock currently carries a Zacks Rank #2 and has a VGM Score of A.

Halliburton: Halliburton is an oil field services standout that works throughout the entire lifecycle of a project. Halliburton’s products and offerings help oil and gas companies with everything from exploration and well construction all the way to abandonment activities. Through its market-leading pressure pumping operations, Halliburton is well-positioned to benefit from the rising U.S. land drilling activity, tightening supply/demand fundamentals and pricing momentum.

The Zacks Consensus Estimate for HAL’s 2023 earnings suggests year-over-year growth of 43.3%. The consensus mark for Halliburton’s 2023 EPS has been revised upward by 7 cents in the past 60 days. The company surpassed estimates in each of the four trailing quarters, the average surprise being 5.9%. The stock currently carries a Zacks Rank #2 and has a VGM Score of A.

Urban Outfitters: Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. The company is poised for growth on the back of technological advancements, merchandising improvements and store-rationalization efforts. The firm’s strategic growth initiative, FP Movement, bodes well.

The Zacks Consensus Estimate for URBN’s fiscal 2024 earnings suggests year-over-year growth of 41.7%. The consensus mark for Urban Outfitters’ fiscal 2024 EPS has been revised upward by 19 cents in the past 30 days. The long-term EPS growth rate of the company is 18%, higher than the industry’s 15.5%. URBN currently carries a Zacks Rank #2 and has a VGM Score of A.

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.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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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 athttps://www.zacks.com/performance.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Halliburton Company (HAL) : Free Stock Analysis Report

Ralph Lauren Corporation (RL) : Free Stock Analysis Report

Urban Outfitters, Inc. (URBN) : Free Stock Analysis Report

Graphic Packaging Holding Company (GPK) : Free Stock Analysis Report

CNH Industrial N.V. (CNHI) : Free Stock Analysis Report

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