The favorable December inflation reading has eased concerns about the Federal Reserve’s ability to justify rate cuts in 2025. Adding to the positive sentiment is the strong start to the fourth-quarter 2024 earnings season.
However, uncertainty lingers with Donald Trump resuming presidency. Key policies under the new administration, including higher trade tariffs, fiscal easing and tighter immigration controls, will be closely watched. Planned tariffs on Mexico, Canada and China starting Feb. 1 have already unsettled markets, raising questions about global trade shifts. The Trump 2.0 era is poised to usher in a renewed wave of tariffs and protectionist policies. In this environment, volatility may remain a dominant theme, making value investing an appealing strategy for navigating the uncertain road ahead.
The value investing approach seeks to profit from investing in stocks that appear to be trading at a discount to their intrinsic values and eventually make handsome returns when the stock price rises toward that value, reflecting the actual fundamentals. One interesting ratio that you can consider for ferreting out attractively valued stocks is earnings yield.
Consider investing in stocks like Harmony Biosciences HRMY, Ingevity Corporation NGVT, Gulfport Energy GPOR and Pitney Bowes PBI, which are value picks boasting high earnings yield.
Earnings yield, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price. This metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today. While comparing stocks, if other factors are similar, the ones with higher earnings yield are considered undervalued, while those with lower earnings yield are seen as overpriced.
While earnings yield is nothing but the reciprocal of the P/E ratio, it is albeit a little more illuminating than the traditional P/E ratio as it also facilitates the comparison of stocks with fixed-income securities. Investors often compare the earnings yield of a stock to the prevailing interest rates, such as the current 10-year Treasury yield, to get a sense of the return on investment it offers compared to virtually risk-free returns.
If the yield on a stock is lower than the 10-year Treasury yield, it would be considered overvalued relative to bonds. Conversely, if the yield on the stock is higher, it would be considered undervalued. In this situation, investing in the stock market would be a better option for a value investor.
We have set an 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.
Here we discuss four of the 39 stocks that qualified the screen:
Harmony Biosciences: This pharmaceutical company engages in developing and commercializing therapies for rare neurological disorders. The Zacks Consensus Estimate for HRMY’s 2025 sales and earnings implies year-over-year growth of 18% and 33%, respectively. EPS estimates have moved up by 17 over the past seven days. Harmony Biosciences currently sports a Zacks Rank #1 and has a Value Score of A.
Ingevity: The company is a global producer of high-performance activated carbon materials and specialty chemicals. The Zacks Consensus Estimate for NGVT’s 2025 sales and earnings implies year-over-year growth of 2% and 62%, respectively. EPS estimates have moved up by $1 over the past seven days. Ingevity currently sports a Zacks Rank #1 and has a Value Score of B.
Gulfport: This is a natural gas-focused exploration and production company, primarily operating in the Utica Shale in Ohio and the SCOOP play in Oklahoma. The Zacks Consensus Estimate for GPOR’s 2025 sales and earnings implies year-over-year growth of 22% and 55%, respectively. EPS estimates have moved up by $1.41 over the past 30 days. Gulfport currently sports a Zacks Rank #1 and has a Value Score of B.
Pitney Bowes: This is a global technology company powering billions of transactions — physical and digital — in the connected and borderless world of commerce. The Zacks Consensus Estimate for PBI’s 2025 earnings implies year-over-year growth of 184%. Estimates for 2025 earnings per share have moved up by 3 cents over the past 30 days. Pitney Bowes sports a Zacks Rank #1 and has a Value Score of A.
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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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Pitney Bowes Inc. (PBI) : Free Stock Analysis Report
Gulfport Energy Corporation (GPOR) : Free Stock Analysis Report
Ingevity Corporation (NGVT) : Free Stock Analysis Report
Harmony Biosciences Holdings, Inc. (HRMY) : Free Stock Analysis Report
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