The S&P 500 index declined more than 5% in the first three months of 2025 amid growing concerns over tariffs, economic uncertainty and the rise of low-cost AI offerings in China. The market is now facing heightened volatility. Yesterday, Goldman Sachs lowered its year-end S&P 500 target due to higher recession risks and expectations of weakening corporate profits. In such an uncertain environment, value investing could prove to be a prudent strategy.
Focusing on undervalued stocks with strong fundamentals provides a buffer against market downturns, offering potential upside when sentiment shifts. Value stocks often perform well when growth stocks face headwinds, making them an attractive choice for risk-averse investors in these turbulent times.
ANI Pharmaceuticals, Inc. ANIP, Insteel Industries IIIN, Pitney Bowes PBI, IHS Holding Limited IHS and HighPeak Energy Inc. HPK are a few value stocks boasting high earnings yield that can generate handsome returns.
Play Value Investing Using Earnings Yield Metric
Earnings Yield, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price. This metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today. While comparing stocks, if other factors are similar, the ones with higher earnings yield are considered undervalued, while those with lower earnings yield are seen as overpriced.
While earnings yield is nothing but the reciprocal of the P/E ratio, it is albeit a little more illuminating than the traditional P/E ratio as it also facilitates the comparison of stocks with fixed-income securities. Investors often compare the earnings yield of a stock to the prevailing interest rates, such as the current 10-year Treasury yield, to get a sense of the return on investment it offers compared to virtually risk-free returns.
If the yield on a stock is lower than the 10-year Treasury yield, it would be considered overvalued relative to bonds. Conversely, if the yield on the stock is higher, it would be considered undervalued. In this situation, investing in the stock market would be a better option for a value investor.
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 highlight five of the 56 stocks that qualified the screening:
ANI Pharma is engaged in developing, manufacturing and marketing branded and generic prescription pharmaceuticals. The Zacks Consensus Estimate for ANIP’s 2025 and 2026 earnings per share implies year-over-year growth of 22% and 14%, respectively. Estimates for 2025 and 2026 earnings per share have moved up by 81 cents and 46 cents, respectively, over the past 30 days. ANI Pharma currently sports a Zacks Rank #1 and has a Value Score of B.
Insteel is one of the nation's largest manufacturers of steel wire reinforcing products for concrete construction applications. The Zacks Consensus Estimate for IIIN’s fiscal 2025 and 2026 earnings per share implies year-over-year growth of 39.4% and 116%, respectively. Estimates for fiscal 2025 and 2026 earnings per share have moved up by 5 cents and 17 cents, respectively, over the past 60 days. Insteel currently sports a Zacks Rank #1 and has a Value Score of B.
Pitney Bowes is a global technology company, powering billions of transactions — physical and digital — in the connected and borderless world of commerce. The Zacks Consensus Estimate for PBI’s 2025 and 2026 earnings implies year-over-year growth of 47.5% and 8.3%, respectively. Estimates for 2025 and 2026 earnings per share have moved up by 9 cents and 8 cents, respectively, over the past 60 days. Pitney Bowes sports a Zacks Rank #1 and has a Value Score of A.
IHS Holding is one of the largest independent owners, operators and developers of shared communications infrastructure in the world by tower count. The Zacks Consensus Estimate for IHS’ 2025 and 2026 earnings implies year-over-year growth of 115% and 17%, respectively. Estimates for 2025 and 2026 earnings per share have moved up by 17 cents and 28 cents, respectively, over the past 30 days. IHS Holdings sports a Zacks Rank #1 and has a Value Score of A.
HighPeak Energy is engaged in the production of oil, natural gas and NGL reserves. The Zacks Consensus Estimate for HPK’s 2025 and 2026 earnings implies year-over-year growth of 157% and 20%, respectively. Estimates for 2025 and 2026 earnings per share have moved up by 83 cents and 95 cents, respectively, over the past 30 days. HighPeak Energy sports a Zacks Rank #1 and has a Value Score of A.
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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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