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Pick These 4 High Yield Stocks for Marvelous Returns

Zacks

Earnings Yield is a simple yet effective measure to use for investors with exposure to stocks as well as bonds. The metric is an inverse of the price-to-earnings (P/E) ratio, which is usually used to find undervalued stocks. However, if an investor wants to compare stocks with fixed income securities or the market at large, earnings yield may prove to be a more appropriate metric.

Earnings Yield is calculated as (Annual Earnings per Share/Market Price) x 100. Stocks with higher earnings yield are likely to offer healthier returns.

Earnings Yield can also be used to compare the performance of a market index with the 10-year Treasury yield. The market index is considered undervalued compared to the 10-year Treasury bill when market yield is higher than that of the bond. In such a scenario, value investors should ideally choose to invest in the stock market rather than the 10-year Treasury bill.

However, one must 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.


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.

Here are four of the 10 stocks that made it through the screen:

Methanex Corporation MEOH is a Vancouver based company engaged in the worldwide production and marketing of methanol. The company sports a Zacks Rank #1 and its expected EPS growth rate for the next 3–5 years is 15%.

POSCO PKX manufactures hot and cold rolled steel products, heavy plate and other steel products for the construction and shipbuilding industries. The company holds a Zacks Rank #2 and its expected EPS growth rate for the next 3–5 years is 5%.

Mobile TeleSystems OJSC MBT aims to build an integrated mobile communications world, which will bring people together, enrich their lives and open up new horizons, both at work and at home, through experienced personnel and innovative technology. It has an expected EPS growth rate of 10.9% for the next 3–5 years and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Digital Corporation WDC designs, develops, manufactures and markets a broad line of hard drives featuring leading-edge technology. The company sells its products worldwide to computer manufacturers for inclusion in their computer systems or subsystems and to distributors, resellers and retailers. This Zacks Rank #1 company has an expected EPS growth rate of 4.8% for the next 3–5 years.

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.

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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