Value investing is all about ferreting out stocks that are currently priced lower than their intrinsic value. But how do value investors go about discovering these hidden gems? Many prefer price to earnings (P/E) and price to sales (P/S) ratios for identifying low-priced stocks with exceptional returns. There’s another interesting ratio that you can consider for finding 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 measured as (Annual Earnings per Share/Market Price) x 100. While comparing similar stocks, the one with higher earnings yield is more likely to provide better returns, with other factors remaining constant. Marathon Oil Corporation MRO, Nutrien Limited NTR, Arrow Electronics Inc. ARW, Micron Technology MU and Teck Resources Limited TECK could be some attractive bets if you are looking for high earnings yield picks.

Earnings yield has an edge over the P/E ratio as the former 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.

It is important to remember that T-bills are risk free, while stock investments come with a caveat. It would be a good idea to add a risk premium to the Treasury yield while comparing it with the earnings yield of a stock or the overall market.

The Winning Strategy

We have set Earnings Yield greater than 10% as our primary screening criterion but it alone cannot be used for picking stocks that have the potential of generating 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 Choices

Here are four of the 123 stocks that made it through the screen:

Nutrien: Canada-based Nutrien is a leading provider of crop inputs and services. The company is benefiting from solid demand and higher prices of crop nutrients on strength in the global agriculture markets. NTR is also gaining from acquisitions, cost efficiency and increased adoption of its digital platform. The company continues to expand its footprint in Brazil through acquisitions, including Tec Agro.

Nutrien currently sports a Zacks Rank #1 (Strong Buy). It has an expected earnings growth rate of 106.4% for the current year. The Zacks Consensus Estimate for earnings of NTR for the current year has moved up 37.8% in the past 60 days.

Marathon Oil: Texas-based Marathon Oil is one of the leading oil and natural gas exploration companies. The wells drilled by Marathon Oil have extremely low oil price breakeven costs and need oil prices of just $35 a barrel to be profitable. MRO’s robust operational metrics should support strong long-term cash flows. The company is targeting production in the range of 340,000-350,000 barrels of oil equivalent per day in 2022.

Marathon Oil, currently sporting a Zacks Rank #1, surpassed estimates in the last four quarters, with the average being 37.4%. The Zacks Consensus Estimate for its 2022 earnings has improved 11 cents over the past seven days to $3.23 per share, implying year-over-year growth of 106%.

Arrow Electronics: New York-based Arrow Electronics is one of the world’s largest distributors of electronic components and enterprise computing products. ARW’s core strength of providing best-in-class services and easy-to-acquire technologies will bolster its growth in the future. Continued focus on boosting Internet of things capabilities is helping the company to expand to newer markets and gain customers.

Arrow Electronics — currently flaunting a Zacks Rank #1 — surpassed earnings estimates in the last four quarters, with the average being 19%. The Zacks Consensus Estimate for its 2022 earnings has improved 18.8% over the past 60 days to $18.48 per share, implying year-over-year growth of 19.2%.

Teck Resources: Canada-based Teck Resources is a diversified resource company committed to mining and mineral development, with business units focused on steelmaking coal, copper, zinc and energy. TECK is well positioned to benefit from its portfolio of world-class assets in stable jurisdictions, ongoing cost reduction program and innovation-driven efficiency program, RACE21.

Currently, Teck Resources sports a Zacks Rank #1. The company surpassed estimates in the last four quarters, with the average being 13%. The Zacks Consensus Estimate for its 2022 earnings has improved 7.4% over the past seven days to $7.11 per share, implying year-over-year growth of 57.3%.

Micron: Idaho-based Micron has established itself as one of the leading worldwide providers of semiconductor memory solutions. The company is witnessing growing demand for memory chips from cloud-computing providers and acceleration in 5G cellular network adoptions. The rising mix of high-value solutions, enhancement in customer engagement and improvement in the cost structure are growth drivers as well.

Micron — which currently carries a Zacks Rank #2 — surpassed earnings estimates in the last four quarters, with the average being 5%. The Zacks Consensus Estimate for its fiscal 2022 earnings has improved 8 cents over the past 30 days to $9.03 per share, implying year-over-year growth of 49%.

Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Marathon Oil Corporation (MRO) : Free Stock Analysis Report Micron Technology, Inc. (MU) : Free Stock Analysis Report Arrow Electronics, Inc. (ARW) : Free Stock Analysis Report Teck Resources Ltd (TECK) : Free Stock Analysis Report Nutrien Ltd. (NTR) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research