Chicago, IL – February 25, 2022 – Stocks in this week’s article are Nutrien NTR, Whiting Petroleum WLL, Crocs CROX and Silicon Motion SIMO.
Market conditions continue to deteriorate amid escalating tensions between Russia and Ukraine. Both Dow and Nasdaq fell for the fifth straight session yesterday, undercutting their year-to-date low levels touched on Jan 24. The tech heavy-index finished the day down 2.6% at 13,037.49, while Dow Jones shed 1.4%. S&P 500 dropped further into the correction territory, falling 1.8% yesterday.
As Russia invades Ukraine, the already shaky market could be in for further turmoil. That might just create some good buying opportunities and it would be wise to invest in some value stocks like Nutrien, Whiting Petroleum, Crocs and Silicon Motion for long-term gains.
Before that let's delve deeper into the broader tensions that are crippling the stock market.
Yesterday, Russian President Putin began sending troops into the two breakaway regions of eastern Ukraine and the United States and its allies levied sanctions against Russia. U.S. and Germany also halted the certification of the Nord Stream 2 pipeline.
Early today, Putin declared the start of a “special military operation” in Ukraine, aimed at " demilitarization and denazification” of the country. He ordered the invasion of Ukraine and also warned outsiders of severe consequences in the event of any interference. Quoting him, “If you interfere, you will face consequences greater than any you have faced in history. All relevant decisions have been taken. I hope you hear me." President Biden responded,, “Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering.”
Investors are already worried about record inflation and the Fed’s hawkish stance. Several economists and financial experts are concerned that the Fed may hike the rate by 50 basis points four times this year or 25 basis points seven or eight times this year. High oil prices, flirting around $100 a barrel, are only making the inflation concerns grow.
And now with Russia launching a full-scale invasion, global stock markets are set for a further downside. A senior global macro strategist at Truist, Eylem Senyuz, said, “historically military/crisis events tend to inject volatility into markets and often cause a short-term dip, but stocks tend to eventually rebound unless the event pushes the economy into recession.”
Well, time will tell. But investors should brace themselves for further correction amid this full-blown war. When a correction is significant, you could buy anything but you stand to gain the most if you pick value stocks with strong long-term potential.
Amid such escalating ongoing tensions and uncertainty, value investing could be one of the most effective investment approaches.
Value investing takes a long-term view and seeks to gauge the intrinsic value of the companies based on their fundamental strength, earnings potential and financials. It involves uncovering a firm’s true value, thus helping investors avoid knee-jerk reactions.
The strategy basically seeks to profit from investing in stocks that appear to be trading at a discount to their intrinsic values. Value investors benefit from identifying and buying stocks, which are underestimated by the equity market and are thus trading below their true value, and eventually make handsome returns when the stock price rises toward its intrinsic value to reflect actual fundamentals.
One of the most common valuation metrics to pick undervalued stocks with solid upside potential is the P/E ratio. However, there’s another interesting ratio that you can consider for ferreting out attractively valued stocks. And that is, earnings yield, which is nothing but the reciprocal of the P/E ratio, albeit a little more illuminating than the traditional P/E ratio.
Earnings yield is useful for investors concerned about the rate of return on investment. This metric, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price — the inverse of the P/E ratio.
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 one with higher earnings yield is considered undervalued, while those with lower earnings yield are seen as overpriced.
Earnings yield has an edge over P/E ratio as the former 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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1872407/4-high-earnings-yield-value-picks-to-counter-market-bloodbath
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Crocs, Inc. (CROX) : Free Stock Analysis Report
Silicon Motion Technology Corporation (SIMO) : Free Stock Analysis Report
Whiting Petroleum Corporation (WLL) : Free Stock Analysis Report
Nutrien Ltd. (NTR) : Free Stock Analysis Report
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