The U.S. economy is entering a more challenging environment as renewed Middle East tensions push oil prices above $100 a barrel, adding to inflationary pressures. Annual CPI inflation accelerated to 3.4% in August, well above the Federal Reserve’s 2% target. Meanwhile, a stronger-than-expected jobs report and hawkish comments from Fed Chair Kevin Warsh have increased expectations for a 25-basis-point rate hike tomorrow—the first in more than three years.
With borrowing costs already weighing on financially stretched households, higher rates could further pressure economic activity and create a more selective environment for investors. Against this backdrop, value investing could offer a compelling approach.
Value investing means buying stocks that are priced below what they are really worth. It works on the idea that markets often misprice stocks, giving investors a chance to buy low and profit later. Ternium S.A. TX, Halozyme Therapeutics HALO, POSCO Holdings Inc. PKX and Talos Energy LLC TALO are a few solid high-value picks with high earnings yields.
Earnings Yield Strength
Earnings yield is useful for investors concerned about the rate of return on investment. This metric, expressed as a percentage, is calculated as annual earnings per share (EPS) divided by market price. 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 ones with higher earnings yield are considered undervalued, while those with lower earnings yield are seen as overpriced.
While earnings yield is nothing but the reciprocal of the P/E ratio, it is a little more illuminating than the traditional P/E ratio, as it 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.
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 four of the 34 stocks that qualified the screening:
Ternium: It is a leading producer of steel products in Latin America and consolidates the operations of steel companies like Hylsa in Mexico, Siderar in Argentina and Sidor in Venezuela. The Zacks Consensus Estimate for Ternium’s 2026 and 2027 earnings implies year-over-year growth of 201% and 24%, respectively. EPS estimates for the current and next year have moved up by 47 cents and $1.11, respectively, over the past 30 days. TX stock currently sports a Zacks Rank #1 and has a Value Score of A.
Halozyme: It is a biopharmaceutical company focused on the development and commercialization of novel treatments for oncology indications by targeting the tumor microenvironment. The Zacks Consensus Estimate for HALO’s 2026 and 2027 EPS implies year-over-year growth of 110% and 12%, respectively. EPS estimates for the current and next year have moved up by 36 cents and 15 cents, respectively, over the past 30 days. Halozyme currently carries a Zacks Rank #2 and has a Value Score of B.
POSCO: It manufactures and markets a wide range of steel products, including hot-rolled sheets, plates, wire rods, cold-rolled sheets, galvanized sheets and stainless steel globally. The Zacks Consensus Estimate for PKX’s 2026 and 2027 EPS implies year-over-year growth of 243% and 14%, respectively. EPS estimates for the current and next year have moved up by 47 cents and 29 cents, respectively, over the past 60 days. POSCO currently sports a Zacks Rank #1 and has a Value Score of A.
Talos Energy: It engages in exploration and production of oil and natural gas properties. It operates primarily in the Gulf of Mexico and in the shallow waters off the coast of Mexico. The Zacks Consensus Estimate for Talos Energy’s 2026 and 2027 earnings implies year-over-year growth of 314% and 22%, respectively. EPS estimates for the current and next year have moved up by 43 cents and 44 cents, respectively, over the past 30 days. TALO stock currently sports a Zacks Rank #1 and has a Value Score of A.
7 Best Stocks for the Next 30 Days
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Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention.
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POSCO Holdings Inc. (PKX): Free Stock Analysis Report
Halozyme Therapeutics, Inc. (HALO): Free Stock Analysis Report
Ternium S.A. (TX): Free Stock Analysis Report
Talos Energy Inc. (TALO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).