5 High Earnings Yield Value Stocks That You Shouldn’t Ignore

After all major indexes ended the first half of the year in the green, more gains are anticipated in the second half. The resilient economy, robust job market, upward-trending sales and earnings estimates, and near-record household incomes provide strong support for continued market growth. Fed Chair Jerome Powell mentioned that the country is returning to a disinflationary path, though more data is needed before rate cuts can be confidently implemented. The Fed currently plans for just one rate cut by the end of the year, but the timing remains uncertain, and analysts believe the Fed will proceed cautiously.

In this elevated interest rate environment, value investing could be an effective approach. Value investing seeks to profit from investing in stocks that appear to be trading at a discount to their intrinsic values and eventually make handsome returns when the stock price rises toward that value, reflecting the actual fundamentals.

One interesting ratio that you can consider for ferreting out attractively valued stocks is earnings yield. Stocks like Harmony Biosciences (NASDAQ:HRMY), GeoPark Ltd. (NYSE:GPRK), GigaCloud Technology Inc. (NASDAQ:GCT), Costamare Inc. (NYSE:CMRE) and Arko Corp. ARKO boast impressive earnings yield to help you fetch handsome long-term rewards.

Earnings Yield Strength

Earnings yield, expressed in percentage, is calculated as annual earnings per share 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 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…