Zacks.com featured expert Kevin Matras highlights: Actavis, Aspen Insurance,
Aegean Marine, Trinity Industries and United Rentals
CHICAGO, Jan. 15, 2014
CHICAGO, Jan. 15, 2014 /PRNewswire/ -- Stocks in this week's article include:
Actavis (NYSE: ACT – Free Report), Aspen Insurance (NYSE: AHL – Free Report),
Aegean Marine (NYSE: ANW – Free Report), Trinity Industries (NYSE: TRN – Free
Report) and United Rentals (NYSE: URI – Free Report). Kevin Matras talks about
a stock's earnings yield and how to use it.
Screen of the Week written by Kevin Matras of Zacks Investment Research:
A stock's Earnings Yield measures just that, the anticipated yield (or return)
an investment in a stock could give you based on the earnings and the price
paid for the stock.
The most common way people will use this ratio is to compare it to other
stocks and to compare the yields to the 10 Year T-Bill.
Conventional wisdom has it that if the yield on the stock market (S&P 500 for
example) is lower than the yield on the 10 Year Treasury, then stocks might be
considered overvalued. If the yield on the S&P 500 is greater than the 10 Year
T-Bill, stocks would be considered undervalued.
The theory behind this is that Bonds and Stocks are competing for investors'
dollars. And to attract investment interest in stocks, a higher yield needs to
be paid to the stock investor for the extra risk he's assuming compared to the
virtual risk-free investment offered in US backed Treasuries.
If earnings go up, the yield goes up. If earnings go down, so does the yield.
Prices also affect the yield, but they move inversely. If Prices go up, the
yield goes down. And if prices go down, the yield goes up.
Currently, the earnings yield for the S&P is 6.35%, compared to the 10 Year
Treasury of 2.84%. So stocks are still the more attractive investment,
assuming you're ok with the risk that comes along with it.
The screen I'm running today looks for the following:
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