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5 High Earnings Yield Stocks that Promise Solid Returns

Earnings Yield is a simple yet effective ratio for investors in stocks or bonds. It is the inverse of the price-to-earnings (P/E) ratio, which is often used to handpick undervalued stocks. However, one limitation of the P/E ratio is that it cannot be used to compare stocks with fixed income securities.

This is where the Earnings Yield gains the upper hand. It is calculated as (Annual Earnings per Share/Market Price) x 100.

Earnings Yield can be used to compare a stock with other stocks as well as with fixed income securities. While comparing similar stocks, the one with the higher earnings yield should provide better returns.

Earnings Yield can also be used to compare the 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 to invest in stocks. However, given the risk-free nature of T-bills, it would be prudent to add a risk premium to their yield while comparing with a stock or the market index.

The Winning Strategy

We have set Earnings Yield greater than 10% as our primary screening criterion, but it alone cannot be used for selecting 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 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 their peers in any type of market environment.

Here are five of the 11 stocks that made it through the screen:

Korea Electric Power Corp. (KEP)

Orchid Island Capital, Inc. (ORC)

Trinseo SA (TSE)

Aegean Marine Petroleum Network Inc. (ANW)

CVR Refining, LP (CVRR)

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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:">

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AEGEAN MARINE (ANW): Free Stock Analysis Report
KOREA ELEC PWR (KEP): Free Stock Analysis Report
TRINSEO SA (TSE): Free Stock Analysis Report
ORCHID ISLAND (ORC): Free Stock Analysis Report
CVR REFINING LP (CVRR): Free Stock Analysis Report
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