The October Personal Consumption Expenditures (PCE) Price Index revealed a re-acceleration of inflation, with consumer prices rising 2.3% year over year, up from September's 2.1%, raising questions about the Federal Reserve's timeline for further rate cuts. Adding to the unease, President-elect Donald Trump's tariff threats targeting major U.S. trading partners — Canada, Mexico, and China — are set to heighten market volatility.
Amid this backdrop of inflationary pressures and policy uncertainty, value investing stands out as a resilient strategy. By identifying stocks undervalued relative to their intrinsic worth, investors can profit as fundamentals catch up with valuations. A useful metric for spotting attractive value opportunities is earnings yield. Stocks like Pitney Bowes PBI, Mr. Cooper Group Inc COOP, BrightSphere Investment Group BSIG, Qifu Technology Inc. QFIN and Quad Graphics QUAD make for good value picks displaying high earnings yield.
Understanding 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 discuss five of the 30 stocks that qualified the screen:
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 2024 and 2025 earnings implies year-over-year growth of 850% and 176%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 3 cents and 7 cents, respectively, over the past 30 days. Pitney Bowes currently sports a Zacks Rank #1 and has a Value Score of A.
Cooper Group is engaged in non-banking services for mortgage loans and provides quality servicing, origination and transaction-based services principally to single-family residences primarily in the United States. The Zacks Consensus Estimate for COOP’s 2024 and 2025 earnings implies year-over-year growth of 62% and 29%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 8 cents and 2 cents, respectively, over the past 30 days. Cooper Group currently sports a Zacks Rank #1 and has a Value Score of B.
BrightSphere is a diversified multi-boutique asset management company providing investment management services to institutional investors. The Zacks Consensus Estimate for BSIG’s 2024 and 2025 earnings implies year-over-year growth of 46% and 12%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 19 cents and 22 cents, respectively, over the past 30 days. BrightSphere currently sports a Zacks Rank #1 and has a Value Score of B.
Qifu Technology is a credit-tech platform offering a full suite of services that support financial institutions, consumers and SMEs throughout the loan lifecycle, including borrower acquisition, credit assessment, fund matching and post-loan services. The Zacks Consensus Estimate for QFIN’s 2024 and 2025 earnings implies year-over-year growth of 55% and 12%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 42 cents and 65 cents, respectively, over the past seven days. Qifu Technology currently sports a Zacks Rank #1 and has a Value Score of A.
Quad Graphics is a provider of print and related multichannel solutions for consumer magazines, special interest publications, catalogs, retail inserts and circulars, direct mail products, books and directories. The Zacks Consensus Estimate for QUAD’s 2024 and 2025 earnings implies year-over-year growth of 62% and 29%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 8 cents and 2 cents, respectively, over the past 30 days. Quad Graphics currently carries a Zacks Rank #2 and has a Value Score of A.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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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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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