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5 High Earnings Yield Stocks for Rich Rewards

Price-to-earnings (P/E) ratio is often used by investors to handpick undervalued stocks. However, it is difficult to use the P/E ratio to compare stocks with fixed income securities. This is where its inverse – Earnings Yield – comes handy.

Earnings Yield is calculated as (Annual Earnings per Share/Market Price) x 100. While comparing similar stocks, the one with the higher earnings yield may provide better returns.

You can use the Earnings Yield to compare a stock with other stocks and with fixed income securities. It can also be used to compare the overall performance of a market index with the 10-year Treasury yield.

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 such a situation, a value investor would prefer the stock market. However, the risk-free nature of T-bills makes it necessary to add a risk premium to their yield while making comparisons with a stock or the overall market.

Screening Criteria

We have set Earnings Yield greater than 10% as our primary screening criteria, but it alone cannot be used for selecting stocks that have the potential to generate solid returns. So, we have added the following parameters:

Estimated EPS growth for the next 12 months greater than 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 $5.00.

Zacks Rank less than 3: Stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy) generally outperform than their peers in any type of market environment.

VGM Score less than or equal to B:Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with Zacks Rank #1 or 2 offer the best upside potential.

Here are five of the 15 stocks that qualified the screening:

Fiat Chrysler Automobiles N.V. (FCAU)

Transocean Partners LLC (RIGP)

Mallinckrodt Public Limited Company (MNK)

Radian Group Inc. (RDN)

Owens-Illinois, Inc. (OI)

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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: http://www.zacks.com/performance">http://www.zacks.com/performance.

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FIAT CHRYSLER (FCAU): Free Stock Analysis Report
 
RADIAN GRP INC (RDN): Free Stock Analysis Report
 
OWENS-ILLINOIS (OI): Free Stock Analysis Report
 
TRANSOCEAN PTN (RIGP): Free Stock Analysis Report
 
MALLINCKRODT PL (MNK): Free Stock Analysis Report
 
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