The major market indexes declined significantly following the Fed’s third consecutive 75-basis point rate hike to squash the high inflation. As markets weighed the recession threat, bond yields soared to new highs. The 10-year Treasury yield jumped to 3.9%, reaching its highest level since 2010. The 2-year Treasury yield surged to 4.3%.
Since inflation continues to remain at an uncomfortably high level, the Federal Reserve has reiterated its intention to raise interest rates until it meets its long-term inflation target. Fed Chair Jerome Powell said the effort might pull the United States into a period of subpar growth and higher unemployment but letting inflation increase would bring "far greater pain.”
Amid such uncertain market conditions, investors should be judicious in picking stocks. One could consider investing in quality stocks Shell plc (SHEL) and Lockheed Martin Corporation (LMT), which have recently been upgraded to Strong Buy in our proprietary rating system.
Shell plc (SHEL)
SHEL is an international energy and petrochemical company headquartered in London, United Kingdom. The company is engaged in the exploration, production, refining, and marketing of oil and natural gas and the manufacturing and marketing of chemicals. Its businesses include Upstream, Integrated Gas, Renewables and Energy Solutions, and Downstream.
On August 9, 2022, SHEL’s subsidiary Shell Overseas Investment B.V. acquired Solenergi Power Private Limited and Sprng Energy Group, a renewable energy platform. This acquisition is expected to increase the company’s renewable capacity three times in operation and help deliver its Powering Progress strategy.
For the fiscal second quarter that ended June 30, 2022, SHEL’s total revenue and other income increased 23.9% year-over-year to $103.08 billion. Its adjusted earnings grew 25.6% year-over-year to $11.47 billion. The company’s adjusted EBITDA increased 70% year-over-year to $23.15 billion. Also, its adjusted EPS increased 116.9% year-over-year to $1.54.
For the quarter ending September 30, 2022, SHEL’s EPS is expected to increase 183% year-over-year to $3. Its revenue for the next quarter ending December 31, 2022, is expected to increase 17.7% year-over-year to $100.36 billion. It has surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has lost 7.3% to close the last trading session at $48.07.
SHEL’s strong fundamentals are reflected in its POWR Ratings. On September 22, the stock’s overall rating was upgraded to an A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Momentum and a B for Sentiment and Quality. Within the B-rated Energy - Oil & Gas industry, it is ranked #8 out of 94 stocks. To see the other ratings of SHEL for Growth, Value, and Stability, click here.
Lockheed Martin Corporation (LMT)
Security and aerospace company LMT focuses on research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services. It operates through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
On September 27, 2022, the U.S. Army granted LMT a $158 million contract to produce additional Early Operational Capability (EOC) Precision Strike Missiles (PrSM). This is expected to generate substantial revenues for the company.
LMT’s net sales for the fiscal second quarter (ended June 26, 2022) came in at $15.45 billion. Its non-GAAP net earnings and non-GAAP EPS for the period amounted to $1.68 billion and $6.32, respectively. As of June 26, 2022, the company’s total assets increased marginally to $51.76 billion from $50.87 billion for the fiscal year ended December 31, 2021.
The consensus revenue estimate of $16.64 billion for the fiscal third quarter (ending September 30, 2022) represents a 3.8% increase from the same period last year. The consensus EPS estimate of $6.68 for the current quarter represents a 202.3% increase from the same period last year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 13.1% to close the last trading session at $399.74.
LMT’s POWR Ratings reflect its solid prospects. On September 23, the stock’s overall rating was upgraded to an A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Stability and Quality. Out of 74 stocks in the Air/Defense Services industry, it is ranked #3. Click here to see the other ratings of LMT for Growth, Value, Momentum, and Sentiment.
SHEL shares were trading at $49.23 per share on Wednesday afternoon, up $1.16 (+2.41%). Year-to-date, SHEL has declined -3.99%, versus a -21.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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