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5 Hot High Earnings Yield Stocks

Investors often use P/E ratio and other valuation metrics while picking undervalued stocks with solid upside potential. However, you can use another interesting ratio, the Earnings Yield, to compare a stock with not just other stocks but also fixed income securities. Other things remaining constant, a stock with a higher earnings yield has the potential to provide comparatively greater returns.

Earnings Yield is calculated as (Annual Earnings per Share/Market Price) x 100. In other words, it is the inverse of P/E ratio.

This metric is often used to compare the performance of a market index with the 10-year Treasury yield.

So, if the yield of the market index is more than the 10-year Treasury yield, stocks can be considered as undervalued compared to bonds. In such a circumstance, investing in the stock market would be a better option for a value investor. However, you need to keep in mind that T-bills are risk free, while investing in stocks always comes with a caveat. Hence, it would be a good idea to add a risk premium to the Treasury yield while comparing it with the earnings yield of a stock or the overall market.

The Winning Strategy

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 generate solid returns. So, we have added the following parameters too.

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 equal to 1:Since 1988, a portfolio constructed of Zacks Rank #1 (Strong Buy) stocks has generated an average annual return of +26% and surpassed the S&P 500 in 23 of the 26 years.

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

Here are five of the 12 stocks that passed the screen:

Daqo New Energy Corp. (DQ)

Trinseo SA (TSE)

United Insurance Holdings Corp. (UIHC)

Fibria Celulose S.A. (FBR)

The Goodyear Tire & Rubber Company (GT)

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 taking the investment plunge.

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:">

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TRINSEO SA (TSE): Free Stock Analysis Report
DAQO NEW ENERGY (DQ): Free Stock Analysis Report
UTD INSURANCE (UIHC): Free Stock Analysis Report
FIBRIA CELULOSE (FBR): Free Stock Analysis Report
GOODYEAR TIRE (GT): Free Stock Analysis Report
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