Investors’ concerns over the Federal Reserve’s aggressive interest rate hikes to combat the multi-decade high inflation and a consequent economic slowdown have led to a massive sell-off in equities over the past couple of months.
The S&P 500 has declined 20% year-to-date, while the Dow Jones Industrial Average and the Nasdaq Composite Index have fallen 14.4% and 28.4%, respectively.
However, the market’s continued correction gives investors a golden opportunity to add quality stocks to their portfolios at attractive valuations. Given the fundamental strength, these stocks are expected to rebound faster when the market starts recovering.
Fundamentally sound stocks Telefonaktiebolaget LM Ericsson (ERIC), Fujitsu Limited (FJTSY), and Mitsubishi Chemical Holdings Corporation (MTLHY) have lost more than 25% year-to-date and are currently trading at significant discounts to their peers. So, it could be wise to invest in these stocks.
Telefonaktiebolaget LM Ericsson (ERIC)
Headquartered in Stockholm, Sweden, ERIC offers communication infrastructure, services, and software solutions to telecom and other sectors. It operates through four segments: Networks, Digital Services, Managed Services, and Emerging Business and Other.
On May 4, 2022, ERIC launched the Global Utilities Innovation Center at its facility in Texas. The new platform is expected to accelerate utilities’ 4G and 5G solutions. Koustuv Ghoshal, Vice President and Head of Utilities, Energy & Industrials at ERIC North America, said, “We look forward to partnering with utilities around the world on their grid modernization journey.”
In the fiscal first quarter (ended March 31, 2022), ERIC’s net sales increased 11% from the year-ago value to SEK55.06 billion ($5.45 billion), while its gross income grew 9% year-over-year to SEK23.28 billion ($2.30 billion). Its cash and cash equivalents amounted to SEK76.86 billion ($7.60 billion), representing a 42.2% year-over-year improvement.
The stock’s forward non-GAAP P/E multiple of 10.52x is 38.6% lower than the industry average of 17.13x. In addition, its forward EV/Sales ratio of 0.88x is 68.1% lower than the industry average of 2.77x.
The consensus EPS estimate of $0.16 for the fiscal second quarter (ending June 2022) represents an increase of 17.4% year-over-year. Its revenue for fiscal 2023 is expected to increase 2.3% year-over-year to $25.74 billion. The stock has declined 28.4% year-to-date to close the last trading session at $7.78.
ERIC’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It also has an A grade for Value and a B grade for Stability and Quality. Among the 55 stocks in the Technology - Communication/Networking industry, it is ranked #3.
Click here to see the POWR ratings of ERIC for Growth, Momentum, and Sentiment.
Fujitsu Limited (FJTSY)
Headquartered in Tokyo, Japan, FJTSY operates as an information and communication technology company serving the automotive, manufacturing, retail, financial services, transport, telecommunications, and healthcare industries. The company operates through three segments: Technology Solutions, Ubiquitous Solutions, and Device Solutions.
On May 18, 2022, FJTSY collaborated with Amazon Web Services (AWS) to accelerate customers’ digital transformation in the finance and retail industries. This partnership is expected to enhance the company’s portfolio and offerings and expand its market reach.
FJTSY’s cash and cash equivalents increased marginally for fiscal 2021, which ended March 31, 2022, to ¥484.02 billion ($3.56 million). The company’s total assets increased 4.4% year-over-year to ¥3.33 trillion ($245.10 billion).
In terms of forward EV/S, FJTSY is currently trading at 0.88x, 68.3% lower than the industry average of 2.77x. Its forward EV/EBITDA multiple of 6.13x is 49% lower than the industry average of 12.03x.
The stock has declined 28.2% year-to-date to close the last trading session at $24.79.
FJTSY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Quality. The stock is ranked #6 of 81 stocks in the Technology - Services industry.
Click here to see the other ratings of FJTSY for Growth, Momentum, Stability, and Sentiment.
Mitsubishi Chemical Holdings Corporation (MTLHY)
Headquartered in Tokyo, Japan, MTLHY provides health care products, chemicals, industrial gases, and other products in Japan.
Its offerings include specialty chemicals, functional food materials, inorganic materials, electronic and electrical components, products, drug discovery solutions, medical support, nursing care, health support, and clinical examination and service.
On June 21, 2022, Mitsubishi Tanabe Pharma Corporation, a member of the company, received approval for CANAGLU Tablets 100mg for indication of chronic kidney disease complicated with type 2 diabetes mellitus. This approval should accelerate the company’s development and commercialization of CANAGLU Tablets.
On April 11, Mitsubishi Tanabe Pharma Corporation received the marketing authorization for Pertussis, Diphtheria, Tetanus, Inactivated Polio, and Hib Combined Vaccine (BK1310/MT-2355). This highly effective combined vaccine is expected to be heavily demanded by the people.
During fiscal 2021 (ended March 31, 2022), MTLHY’s sales revenue rose 22.1% from the year-ago value to ¥3.98 trillion ($292.90 billion). Its operating income increased 538.1% year-over-year to ¥303.19 billion ($2.23 billion).
Net income attributed to common shareholders grew 821.6% from the same period last year to ¥209.41 billion ($1.54 billion), while its EPS came in at ¥115.03, representing a significant increase year-over-year.
In terms of forward EV/S, MTLHY is currently trading at 0.74x, 47.1% lower than the industry average of 1.40x. Its forward P/S multiple of 0.24x is 78.5% lower than the industry average of 1.12x.
The stock declined 27.7% year-to-date to close the last trading session at $27.05.
MTLHY’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It also has an A grade for Value and Stability and a B grade for Quality. The stock is ranked #9 out of 91 stocks in the A-rated Chemicals industry.
Click here to see the other ratings of MTLHY for Growth, Momentum, and Sentiment.
ERIC shares were trading at $7.66 per share on Wednesday afternoon, down $0.12 (-1.54%). Year-to-date, ERIC has declined -28.86%, versus a -19.19% 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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