Investors focused on assets with high returns may want to consider the following non-cyclical stocks, as their earnings yields (as calculated through Joel Greenblatt's method) are outperforming the S&P 500, which is a benchmark index for the U.S. market.
Greenblatt calculates the earnings yield as the company's earnings before interest and tax (EBIT) divided by its enterprise value. This ratio represents a more reliable reference when it comes to assessing non-cyclical stocks, whose earnings have little or no correlation with the business cycle (as the metric only looks at 12 months of business operations).
As of the writing of this article, the S&P 500's mean historical earnings yield is about 9.3% (the highest over the past six and a half years). The stock picks below are outperforming the S&P 500 index in terms of a higher earnings yield.
NRG Energy Inc
The first stock to consider is NRG Energy Inc (NRG, Financial), a Princeton, New Jersey-based independent energy producer.
The stock grants an earnings yield of 10.82% as of the most recent quarter. This stands above the median point of the past 10-year historical earnings yield range of -17.5% to 31.4%. NRG Energy's earnings yield ranks higher than 81% of 329 companies that are operating in the utilities - independent power producers industry.
The share price traded at around $36.81 at close on Tuesday for a market capitalization of $8.99 billion and a 52-week range of $19.54 to $40.25. The stock price decreased only slightly over the past year.
Its price-earnings ratio is 2.35 (versus the industry median of 19) and the price-book ratio is 4.66 (versus the industry median of 1.42).
The company is currently paying a quarterly cash dividend of 30 cents per common share with the last payment issued to the shareholders last year on Nov. 16. The payment generates a trailing 12-month dividend yield of 3.26% as of Jan. 5.
GuruFocus assigned a score of 4 out of 10 to the company's financial strength rating and of 5 out of 10 to its profitability rating.
As of January, Wall Street sell-side analysts recommend four strong buy recommendation ratings, four buy recommendation ratings and only one hold recommendation rating for the stock with an average target price of $44.67 per share. They also forecast that the EPS will increase by 16.7% year over year in full-year 2020 and by another 12% in 2021.
Tyson Foods Inc
The second stock to consider is Tyson Foods Inc (TSN, Financial), a Springdale, Arkansas-based global food company offering beef, chicken and pork as well as processed, fresh and refrigerated food products to retailers and wholesalers.
The company grants an earnings yield of 10.29% as of the most recent quarter. Tyson Foods' current earnings yield stands above the median point of the 10-year historical range of 5.7% to 22.4% and ranks higher than 80% of 1,689 companies that are operating in the consumer packaged goods industry.
The share price traded at around $63.45 at close on Tuesday for a market capitalization of $23.15 billion and a 52-week range of $42.57 to $94.24. The stock has declined by 28.56% over the past year.
Its price-earnings ratio is 10.83 (versus the industry median of 20.08) and the price-book ratio is 1.49 (versus the industry median of 1.57).
The company is currently paying a quarterly cash dividend of 44.5 cents per common share with the next payment to be issued to the shareholders on March 15. The payment generates a forward dividend yield of 2.81% as of Jan. 5.
GuruFocus assigned a score of 5 out of 10 to the company's financial strength rating and of 8 out of 10 to its profitability rating.
As of January, Wall Street sell-side analysts recommend four strong buy recommendation ratings, seven buy recommendation ratings and five hold recommendation ratings for the stock with an average target price of $75.64 per share. Concerning the company's future EPS, Wall Street expects a 1.6% decline for full-year 2020 but projects a 12.3% increase next year and a 4.4% increase per year over the next five years.
Catalyst Pharmaceuticals Inc
The third stock to consider is Catalyst Pharmaceuticals Inc (CPRX, Financial), a Coral Gables, Florida-based biopharmaceutical developer focusing on developing treatments for rare debilitating, chronic neuromuscular and neurological diseases.
The company grants an earnings yield of 21.55% as of the most recent quarter. Currently, Catalyst Pharmaceuticals' earnings yield stands above the middle point of the 10-year historical range of negative 68.8% to 21.6% and ranks higher than 98% of 1,317 companies that are operating in the biotechnology industry.
The share price traded at $3.51 at close on Tuesday for a market capitalization of $363.81 million and a 52-week range of $2.55 to $5.28. The stock has fallen by 18.37% over the past year.
Its price-earnings ratio is 5.24 (versus the industry median of 41.72) and the price-book ratio is 2.38 (versus the industry median of 4.82).
Catalyst Pharmaceuticals Inc does not pay dividends.
GuruFocus assigned a score of 10 out of 10 to the company's financial strength rating and of 1 out of 10 to its profitability rating.
As of January, Wall Street sell-side analysts recommend four buy recommendation ratings for the stock with an average target price of $7.40 per share. They also expect that the EPS will increase by 133.3% in full-year 2020.
Disclosure: I have no position in any security mentioned.
Read more here:
- 3 Stocks Trading Below the Peter Lynch Fair Value
- A Trio of High-Return Stock Picks
- 3 Stocks that Represent Potential Bargains
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