With inflation moderating from multi-year highs and the Fed turning dovish, it could be an opportune time to capitalize on the potential of fundamentally sound growth stocks Novartis AG (NVS), Daimler Truck Holding AG (DTRUY), and CPI Aerostructures, Inc. (CVU).
Last week, the U.S. central bank raised its benchmark interest rate by a quarter of a percentage point to the 5%-5.25% range, in line with the market expectations. The Federal Reserve hinted at a potential pause to its rate-hiking campaign in June.
Nonfarm payrolls increased 253,000 for April, beating Wall Street estimates for growth of 180,000. The continued strength of the jobs market and signs of slowing inflation have raised hopes that it could ease the market volatility in the coming months.
Moreover, rising wages and low unemployment are fueling consumer spending, the economy’s main driver. Although broader economic growth slowed in the first quarter, Americans continued to spend robustly on goods and services, buoying consumer spending.
Against this backdrop, adding quality growth stocks NVS, DTRUY, and CVU with a focus on earnings consistency and high profitability could be beneficial.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide through two segments: Innovative Medicines and Sandoz.
On May 4, Sandoz signed a distribution and collaboration agreement with Adalvo for exclusive rights to commercialize six products across key therapeutic areas of anti-infectives and oncology.
Slated to launch in the mid-term of 2024, these products have a market size of approximately $3 billion, further advancing the Sandoz product pipeline in the key U.S. generics market.
On April 21, the FDA approved NVS’ Radioligand Therapy (RLT) manufacturing facility in Millburn for U.S. commercial production of Pluvicto. The site is expected to contribute meaningfully to ensure a stable and reliable supply to patients and sales in the third quarter.
For the fiscal first quarter that ended March 31, 2023, NVS’ net sales increased 3.4% year-over-year to $12.95 billion. Its operating income grew marginally from the year-ago value to $2.86 billion.
During the same period, its net income and EPS came in at $2.29 billion and $1.09, representing a 3.4% and 9% year-over-year increase, respectively. In addition, its free cash flow improved by 95.4% from the prior-year quarter to $2.72 billion.
The consensus EPS estimate of $1.64 for the second quarter (ending June 2023) represents a 5.3% improvement year-over-year. The consensus revenue estimate of $13.22 billion for the current quarter represents a 3.4% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
NVS’ EBITDA and EBIT have increased at CAGRs of 3.1% and 2.8%, respectively, over the past three years, while its levered free cash flow has grown at a 2.2% CAGR.
The stock’s trailing-12-month levered FCF margin of 16.19% is 472.8% higher than the 2.83% industry average. Its trailing-12-month ROTA of 27.05% compares with the 4.02% industry average.
The stock has gained 28.2% over the past six months. It closed the last trading day at $104.91.
NVS’ POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has an A grade for Growth and Stability and a B for Value, Sentiment, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked first of 167 stocks. Click here to see the NVS rating for Momentum.
Daimler Truck Holding AG (DTRUY)
Headquartered in Leinfelden-Echterdingen, Germany, DTRUY manufactures and sells light, medium- and heavy-duty trucks and buses; city and intercity buses, touring coaches, and bus chassis; industrial engines; and new and used commercial vehicles. It operates through five segments: Trucks North America; Mercedes-Benz; Trucks Asia; Daimler Buses; and Financial Services.
On January 30, DEUTZ AG collaborated with DTRUY on the acquisition of IP and license rights for medium-duty engines and license rights for further development and marketing of heavy-duty Daimler Truck engines. As compensation, DTRUY would hold 4.19% in DEUTZ AG’s share capital and receive cash payments in installments.
DTRUY’s revenue increased 25.1% year-over-year to €13.20 billion ($14.55 billion) in the first quarter that ended March 31, 2023. Its adjusted EBIT grew 78.5% from the year-ago value to €1.16 billion ($1.28 billion), while its net profit increased 189.1% year-over-year to €795 million ($876.59 million). The company’s EPS improved 190.3% from its year-ago value to €0.90.
Street expects DTRUY’s revenue to increase 12.5% year-over-year to $14.04 billion in the fiscal second quarter (ending June 2023). Moreover, it topped the revenue estimates in each of the trailing four quarters.
Over the past three years, DTRUY’s EBIT and net income have grown at 8.8% and 15.5% CAGRs, respectively. Moreover, its EPS has grown at 15.5% CAGR over the same period.
DTRUY’s trailing-12-month ROCE of 14.82% is 7.1% higher than the 13.83% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.86x is 7% higher than the industry average of 0.80x.
Shares of DTRUY have gained 18.1% over the past year to close the last trading session at $16.10.
DTRUY’s solid prospects are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Stability, and Quality. The stock is ranked #10 of 59 stocks in the Auto & Vehicle Manufacturers industry. To see additional POWR Ratings of DTRUY for Momentum and Sentiment, click here.
CPI Aerostructures, Inc. (CVU)
CVU is a manufacturer of structural assemblies for fixed-wing aircraft, helicopters, and airborne Intelligence Surveillance and Reconnaissance and Electronic Warfare pod systems, primarily for national security markets.
On May 2, CVU received multiple purchase orders of $7.1 million under a previously announced contract from the U.S. Air Force to provide structural modification kits, program management, logistics, and other sustainment services in support of Phase 3 of the T-38C PCIII and TRIM programs.
The new purchase order brings the total funded value of the contract to $38.7 million and extends the currently funded period of performance into 2027.
Additionally, on April 19, the company announced that it had received a $3.6 million follow-on orders for complex welded structural assemblies used on a U.S. military helicopter, whose deliveries are expected to occur through mid-2024.
Such contracts reflect customers’ continued confidence in CVU’s ability to consistently perform and deliver on assembly operations while effectively managing its supply chain.
During the fiscal year that ended December 31, 2022, CVU’s revenue amounted to $83.34 million, while its gross profit increased 8.7% year-over-year to $16.30 million. The company’s income from operations rose 53.8% from the year-ago value to $4.89 million, while its net income came in at $9.18 million and $0.74 per share, up 34.5% and 32.1% from the prior-year values.
CVU’s EPS is expected to increase by 9% per annum over the next five years. Its revenue has grown at a marginal CAGR over the five years, while its total assets have grown at an 11.1% CAGR over the past three years.
The stock’s trailing-12-month ROTA of 15.44% is 204.7% higher than the 5.07% industry average. Likewise, its trailing-12-month net income margin of 11.01% is 71% higher than the industry average of 6.44%.
Over the past six months, the stock has gained 40.8% to close the last trading session at $3.28.
CVU’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. It also has an A grade for Growth and Value and a B for Sentiment. Out of 71 stocks in the Air/Defense Services industry, it is ranked #2.
In addition to the POWR Ratings given above, click here to see CVU’s ratings for Momentum, Stability, and Quality.
What To Do Next?
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NVS shares were trading at $104.81 per share on Tuesday afternoon, down $0.10 (-0.10%). Year-to-date, NVS has gained 18.77%, versus a 7.99% 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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