Yahoo Finance 5 High Earnings Yield Value Stocks to Buy Amid Sticky Inflation
Markets closed lower yesterday as U.S. consumer confidence dipped to its lowest level since 2022, largely attributed to persistent inflationary pressure. The recent GDP growth numbers revealed a slowdown, with the economy expanding at its slowest pace in nearly two years. In the first quarter of 2024, the U.S. economy grew at an annualized rate of 1.6%, down from 3.4% in the fourth quarter of 2023 and below the projected 2.5%. This deceleration can be attributed to prior rate hikes by the Fed.
However, despite the Fed's efforts, U.S. inflation continues to rise, reaching 3.5% in March 2024, the highest since September. This persistent inflationary trend continues despite the Fed's gradual rate hikes over the past 18 months, leading to concerns among investors and policymakers.
As U.S. central bank officials wrap up their latest two-day policy meeting, the focus is on the Federal Reserve's commentary regarding inflation, the economy and potential rate cuts. The debate is increasingly shifting from how many rate cuts to expect this year to whether the Fed should lower interest rates at all in 2024, given the stickier-than-expected inflation.
With conflicting signals from high inflation and slowing economic growth, coupled with geopolitical tensions and the upcoming Presidential election, market volatility is expected. Amid these uncertainties, investors should turn to value investing.
Value investing stands out as a prudent strategy, emphasizing long-term value over short-term market fluctuations.This strategy involves identifying undervalued assets with strong fundamentals, offering potential for long-term growth.
Play Value Investing With Earnings Yield Metric
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. This is expressed in percentage and is calculated as (Annual Earnings per Share/Market Price) x 100.
Earnings yield is the reciprocal of the P/E ratio. While comparing stocks, if other factors are similar, investors can look out for the one with a higher earnings yield. This is because stocks with earnings yield have the potential to provide comparatively greater returns. Firms with a higher earnings yield are considered underpriced, while those with a lower earnings yield are seen as overpriced.
GigaCloud Technology GCT, Tri Pointe Homes, Inc. TPH, Pilgrim's Pride Corporation PPC, Sunoco LP SUN and Allstate Corp ALL are some stocks boasting high earnings yield.
Importantly, earnings yield can also be used to compare the performance of a market index with the 10-year Treasury yield. 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. 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.
The Winning Strategy
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 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 44 stocks that qualified the screen:
GigaCloud is a pioneer of global end-to-end B2B e-commerce solutions for large parcel merchandise. The Zacks Consensus Estimate for GCT’s 2024 and 2025 EPS implies year-over-year growth of 30% and 22%, respectively. Estimates for 2024 and 2025 EPS have moved up by 70 cents and 92 cents, respectively, over the past 30 days. GigaCloud currently sports a Zacks Rank #1 and has a Value Score of A.
Tri Pointe is involved in the design, construction and sale of single-family homes. The Zacks Consensus Estimate for TPH’s 2024 and 2025 EPS implies year-over-year growth of 30% and 13%, respectively. Estimates for 2024 and 2025 EPS have moved up by 83 cents and $1.05, respectively, over the past seven days. Tri Pointe currently sports a Zacks Rank #1 and has a Value Score of A.
Pilgrim’s Pride is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. The Zacks Consensus Estimate for PPC’s 2024 and 2025 earnings implies year-over-year growth of 78% and 2.7%, respectively. Estimates for 2024 and 2025 earnings per share have moved up by 4 cents each over the past 30 days. Pilgrim’s Pride currently sports a Zacks Rank #1 and has a Value Score of A.
Sunoco is the largest independent fuel distributor in the United States, distributing more than eight billion gallons of fuel a year across more than 33 states.The Zacks Consensus Estimate for SUN’s 2024 EPS implies year-over-year growth of 39%. Estimates for 2024 and 2025 EPS have moved up by 11 cents and 7 cents, respectively, over the past 30 days. StoneCo currently carries a Zacks Rank #2 and has a Value Score of A.
Allstate is the third-largest property-casualty insurer and the largest publicly-held personal lines carrier in the United States. The Zacks Consensus Estimate for ALL’s 2024 and 2025 EPS implies year-over-year growth of 1,335% and 21%, respectively. Estimates for 2024 and 2025 EPS have moved up by 6 cents and 13 cents, respectively, over the past 30 days. Allstate currently has a Zacks Rank #2 and a Value Score of B.
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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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The Allstate Corporation (ALL) : Free Stock Analysis Report
Sunoco LP (SUN) : Free Stock Analysis Report
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
Tri Pointe Homes Inc. (TPH) : Free Stock Analysis Report
GigaCloud Technology Inc. (GCT) : Free Stock Analysis Report
