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5 High Earnings Yield Picks to Give Your Portfolio a Dose of Growth

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·5 min read
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Earnings Yield may be a simple yet effective metric for investors with exposure to stocks as well as bonds. The ratio is the inverse of the price-to-earnings (P/E) ratio, which is commonly applied to find undervalued stocks. When one looks to compare stocks with fixed income securities or the market, earnings yield is a more appropriate ratio.

Earnings Yield is measured as (Annual Earnings per Share/Market Price) x 100. While comparing similar stocks, the one with higher earnings yield is more likely to provide better returns, with other factors remaining constant.

Earnings Yield can be used to 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 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 earnings yield of a stock or the overall market.

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 58 stocks that made it through the screen.

Diamondback Energy, Inc. FANG: Midland-based Diamondback is an independent oil and gas explorer. Dual buyouts of Energen and Ajax Resources in 2018 transformed Diamondback into one of the leading Permian Basin oil producers. The recent acquisition of QEP Resources further strengthened the firm’s position in the U.S. hottest shale play. Diamondback’s substantial ownership interest in its infrastructure spin-off — Rattler Midstream — provided the company with an additional source of liquidity. Diamondback currently sports a Zacks Rank #1 and has a VGM Score of B. It has a long-term expected EPS growth rate of 21.9%.

LyondellBasell Industries N.V. LYB: Based in Houston, LyondellBasell is among the leading global plastics, chemical and refining companies, with operations across 18 countries. The Schulman buyout has expanded LyondellBasell's compounding business and created a platform for future growth, with reach into additional high-growth markets. The firm’s HDPE project is expected to boost capacity and contribute to margins. The polyethylene joint venture with Sasol also provides growth visibility. The company currently sports a Zacks Rank #1 and has a VGM Score of B. It has a long-term expected EPS growth rate of 8%.

Avnet, Inc. AVT: Based in Phoenix, Avnet is one of the world’s largest distributors of electronic components and computer products. The acquisition of Dragon Innovation will enable Avnet to provide powerful, simple-to-use tools to engineers, which will aid in the manufacture and roll out of hardware products in a faster as well as cost-effective manner. On the IoT front, the company has made several partnerships with the likes of AT&T as well as acquisitions such as Premier Farnell and Hackster.io to enhance its capabilities in this space. Avnet currently carries a Zacks Rank #2 and has a VGM Score of B. It has a long-term expected EPS growth rate of 22.7%.

Magna International Inc. MGA: Aurora-based Magna is one of the most diversified automotive parts suppliers in the world. Magna stands to benefit from key emerging trends including electrification and autonomous driving. The firm’s sharp focus on innovation and technology development along with regular program launches is likely to boost its prospects. Strategic alliances with Fisker, LG Electronics, Waymo and REE are set to drive Magna. Healthy balance sheet and investor-friendly moves instill optimism. Currently carrying a Zacks Rank #2 and a VGM Score of A, Magna has a long-term expected EPS growth rate of 19.5%.

Axis Capital Holdings Limited AXS: Bermuda-based Axis Capital provides a broad range of specialty insurance and reinsurance solutions to clients on a worldwide basis. Repositioning of the portfolio, carried out over the past three years, is set to drive the stock further. Improved portfolio mix and effective capital deployment should pave way for growth. It boasts one of the highest dividend yields among peers. Expansion of digital capabilities and enhancement of efficiencies also bode well for earnings and sales growth. The company currently holds a Zacks Rank #2 and has a VGM Score of B. It has a long-term expected EPS growth rate of 5%.

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.

Click here to sign up for a free trial to the Research Wizard today.

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


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Avnet, Inc. (AVT) : Free Stock Analysis Report
 
Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
 
Magna International Inc. (MGA) : Free Stock Analysis Report
 
LyondellBasell Industries N.V. (LYB) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
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