The S&P 500 has been on a remarkable run over the past two years, gaining around 24% in both 2023 and 2024. As we enter 2025, the attention is primarily on the policies that President-elect Donald Trump will implement after his inauguration on Jan. 20. Meanwhile, inflation remains persistent, and the Federal Reserve has indicated that only two interest rate cuts are expected in 2025. Investors will closely watch these developments as they navigate a year of economic uncertainty and policy changes. In these uncertain times, value investing could be a smart strategy.
Value investing 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. AdvanSix Inc. (ASIX – Free Report) , Coterra Energy Inc. (CTRA – Free Report) , Kingstone Companies (KINS – Free Report) , Nexa Resources (NEXA – Free Report) and United Airlines Holdings, Inc. (UAL – Free Report) are a few value stocks boasting high earnings yield that can generate handsome returns.
Understanding Earnings Yield Strength
Earnings yield is a critical measure for investors focusing on return rates. Expressed as a percentage, it is calculated by dividing annual earnings per share (EPS) by the market price of the stock. This metric reveals the expected return from earnings for each dollar invested in a stock. When comparing stocks with similar characteristics, those with higher earnings yields are typically viewed as undervalued, while those with lower yields are seen as overpriced.
Although earnings yield is the inverse of the P/E ratio, it offers additional insight, particularly when comparing stocks with fixed-income securities. Investors often compare a stock’s earnings yield to current interest rates, like the 10-year Treasury yield, to assess its return relative to risk-free alternatives. If a stock’s yield is lower than the 10-year Treasury yield, it may be considered overvalued relative to bonds. Conversely, a higher yield suggests undervaluation, making the stock market a more appealing option for value investors.
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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our Picks
Here we discuss five of the 48 stocks that qualified the screen:
AdvanSix is a manufacturer of nylon 6 resin, chemical intermediates and ammonium sulfate fertilizer. It benefits from its differentiated product portfolio, exposure to diverse end markets, and favorable demand and pricing.
The Zacks Consensus Estimate for ASIX’s 2025 sales and earnings implies year-over-year growth of 8% and 174%, respectively. Estimates for 2025 earnings per share have moved up by 16 cents over the past 60 days. AdvanSix currently sports a Zacks Rank #1 and has a Value Score of A.
Coterra is a leading upstream energy company with operations in prominent shale regions such as the Permian Basin, Marcellus Shale and Anadarko Basin. The company recently secured two definitive agreements to acquire premium assets in the Permian, boosting its production outlook.
The Zacks Consensus Estimate for CTRA’s 2025 sales and earnings implies year-over-year growth of 36% and 80%, respectively. Estimates for 2025 earnings per share have moved up by 7 cents over the past 30 days. Coterra currently sports a Zacks Rank #1 and has a Value Score of B.
Kingstone provides property and casualty insurance products to individuals in the United States. It is sharpening its focus on its core business while strategically scaling back on unprofitable non-core operations. Its partnership with Earnix, along with efforts to drive higher average premiums and strengthen the balance sheet, positions the company for success.
The Zacks Consensus Estimate for KINS’ 2025 sales and earnings implies year-over-year growth of 23% and 11%, respectively. Estimates for 2025 earnings per share have moved up by 31 cents over the past 60 days. Kingstone currently sports a Zacks Rank #1 and has a Value Score of B.
Nexa Resources is an integrated zinc producer. It is engaged in developing and operating mining and smelting assets primarily in Latin America. The company’s ongoing efforts to optimize its portfolio and improve cash flow and returns augur well.
The Zacks Consensus Estimate for NEXA’s 2025 sales and earnings implies year-over-year growth of 5.6% and 1,028%, respectively. Estimates for 2025 earnings per share have moved up by 14 cents over the past 30 days. Nexa Resources currently carries a Zacks Rank #2 and has a Value Score of B.
United Airlines, through its subsidiaries, provides air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East and Latin America. UAL’s expansion strategy, coupled with a focus on premium demand, positions it well to capture a larger slice of the travel market.
The Zacks Consensus Estimate for UAL’s 2025 sales and earnings implies year-over-year growth of 8% and 15.2%, respectively. Estimates for 2025 earnings per share have moved up by 14 cents over the past seven days. United Airlines currently carries a Zacks Rank #2 and has a Value Score of B.
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.
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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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