Powell Warns of Valuation Risks: 5 High Earnings Yield Value Picks

The U.S. Federal Reserve last week cut interest rates by 25 basis points after nearly nine months. While this initially lifted investor sentiment, the S&P 500 snapped its three-day rally yesterday.

Fed Chair Jerome Powell cautioned yesterday that stock valuations are still relatively high and that the future path of rate cuts remains uncertain. At the same time, the labor market is showing signs of slowing, with job growth moderating and unemployment ticking up slightly, while inflation remains elevated.

In this environment, focusing on quality companies trading at reasonable prices makes a value investing approach particularly relevant now.

Value investors can consider stocks like Halozyme Therapeutics, Inc. HALO, Ranger Energy Services, Inc. RNGR, Buenaventura Mining Company BVN, Affiliated Managers Group Inc. AMG and LATAM Airlines Group LTM, which boast high earnings yield.

Earnings Yield Metric Strength

Earnings yield, expressed in percentage, is calculated as (Annual Earnings per Share/Market Price) x 100.  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, investors can look for the one with a higher earnings yield. Firms with higher earnings yield are considered underpriced, while those with lower earnings yield are seen as overpriced.

Importantly, earnings yield can also be used to compare the performance of a market index with the 10-year Treasury yield to get a sense of the return on investment it offers compared to virtually risk-free returns. When the yield of the market index is more than the 10-year Treasury yield, stocks can be considered as undervalued than bonds. In this situation, investing in the stock market would be a better option for a value investor.

The Winning Strategy

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.

Our Picks

Here we highlight five of the 57 stocks that qualified the screening:

Halozyme is focused on the development and commercialization of novel treatments for oncology indications by targeting the tumor microenvironment. The Zacks Consensus Estimate for HALO’s 2025 and 2026 earnings implies year-over-year growth of 46% and 22.5%, respectively. EPS estimates for the current and next year have moved up by 17 cents and 9 cents, respectively, over the past 30 days. Halozyme currently sports a Zacks Rank #1 and has a Value Score of B.

Ranger Energy delivers onshore well services to exploration and production companies across the United States, specializing in high-specification rigs, wireline services and related support solutions. The Zacks Consensus Estimate for RNGR’s 2025 and 2026 earnings implies year-over-year growth of 53% and 11.3%, respectively. EPS estimates for the current and next year have moved up by 37 cents and 40 cents, respectively, over the past 60 days. Ranger Energy currently sports a Zacks Rank #1 and has a Value Score of A.

Buenaventura engages in the exploration, development, construction and operation of the mineral processing business. The Zacks Consensus Estimate for BVN’s 2025 and 2026 earnings implies year-over-year growth of 4.4% and 17.7%, respectively. EPS estimates for the current and next year have moved up by 26 cents and 13 cents, respectively, over the past 30 days. Buenaventura currently sports a Zacks Rank #1 and has a Value Score of B.

Affiliated Managers Group is a global asset manager with investments in high-quality, independent partner-owned firms or affiliates. The Zacks Consensus Estimate for AMG’s 2025 and 2026 earnings implies year-over-year growth of 13% and 15%, respectively. EPS estimates for the current and next year have moved up by 72 cents and $1.17, respectively, over the past 60 days. Affiliated Managers Group currently sports a Zacks Rank #1 and has a Value Score of A.

LATAM Airlines is Latin America’s leading airline, operating domestic services across Brazil, Chile, Peru, Colombia and Ecuador, as well as regional and long-haul flights. The Zacks Consensus Estimate for LTM’s 2025 and 2026 earnings suggests year-over-year growth of 45% and 19%, respectively. EPS estimates for the current and next year have been revised upward by 51 cents and 56 cents, respectively, over the past 60 days. LATAM Airlines currently 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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This article originally published on Zacks Investment Research (zacks.com).

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