While many big companies, such as Microsoft Corporation (MSFT), have surpassed earnings estimates for the recently-concluded quarter, they have not been shy about the headwinds they are facing due to the troubled macroeconomic environment.
Yet-to-be-tamed inflation and increasing borrowing costs due to relentless monetary tightening by a hawkish Federal Reserve have led to increasing signs of an economic slowdown.
A weak economic outlook has prevented investors from celebrating the earnings of some companies exceeding conservative Street expectations. Even a moderated interest rate hike of 25 bps by a justifiably cautious Federal Reserve may induce yet another bout of panic and volatility. To add to woes, the U.S Federal government is perilously close to defaulting on its stratospheric debt.
Hence, it could be wise to invest in APA Corporation (APA), North American Construction Group Ltd. (NOA), and Overseas Shipholding Group, Inc. (OSG) because of their solid momentum.
APA Corporation (APA)
As an independent energy company, APA explores, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). The company operates in the United States, Egypt, and the offshore United Kingdom in the North Sea, Suriname, and other international locations.
On January 18, APA updated that, due to the repurchase of 12.1 million shares at an average price of $44.40 per share during the fourth quarter of the fiscal year 2022, its estimated weighted-average basic common shares for the fourth quarter are 321 million, compared with a weighted average of 329 million shares in the previous quarter.
For the full year, the company repurchased 36.2 million shares at an average price of $39.33 per share. These repurchases have demonstrated the management’s confidence in the company’s prospects while increasing the intrinsic value of the holdings of existing shareholders.
On December 13, 2022, APA declared its quarterly cash dividend of $0.25 per share on the corporation’s common stock, payable on February 22, 2023. The company pays $1 annually as a dividend, which translates to a forward yield of 2.20% at the current price, comparable to the 4-year average dividend yield of 2.77%.
On November 28, APA updated drilling operations at the Awari exploration prospect in the previously untested northwest portion of Block 58 of Suriname. APA holds a 50% working interest, while TotalEnergies (TTE) is the operator on the block with a 50% working interest.
On November 14, APA announced the achievement of a compensation-linked environmental, social, and governance (ESG) goal to reduce upstream routine flaring across Egypt operations by 40%. The goal was reached ahead of schedule and is the result of numerous emissions reduction projects executed in Egypt throughout 2022.
For the third quarter of fiscal 2022 ended September 30, 2022, APA’s total revenues came in at $2.89 billion, up 40.2% year-over-year. During the same period, APA’s adjusted earnings came in at $651 million or $1.97 per share, up 75% and 101% year-over-year.
Analysts expect APA’s revenue and EPS for the fiscal year ended December 31, 2022, to come in at $10.55 billion and $7.90, representing increases of 33.1% and 102.4% year-over-year, respectively. The company has also surpassed consensus estimates in two trailing quarters.
The stock is currently trading above its 200-day moving average of $41.16. It has gained 28.1% over the past six months and 33.3% over the past year to close the last trading session at $44.09.
APA’s solid fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
APA has an A grade for Momentum and Quality. It is ranked #24 of 92 stocks in the B-rated Energy – Oil & Gas industry.
Click here for additional POWR Ratings for APA’s Growth, Value, Stability, and Sentiment.
North American Construction Group Ltd. (NOA)
Headquartered in Acheson, Canada, NOA provides equipment maintenance, mining, and heavy construction to its clients in resource development and industrial construction sectors in the U.S., Canada, and Australia. The company operates through two broad divisions: Heavy Construction & Mining; and Equipment Maintenance.
On October 4, 2022, NOA entered into a total return swap agreement with a highly-rated Canadian financial institution for up to 1,000,000 of its common shares with a notional value of approximately $15.0 million for twelve months. This agreement provides an opportunity to capitalize on the positive gap between the intrinsic value of each share and its market price.
On October 1, NOA acquired a privately-owned company specializing in mobile fuel, lube, and steaming services for an estimated purchase price of $15.0 million. The acquisition was premised on the company’s continued drive to lower operating costs by maximizing its internal maintenance capabilities.
On September 20, NOA announced an amendment and extension of its senior secured credit facility to October 8, 2025. In addition to extending existing favorable terms, overall capacity has been allocated to provide greater flexibility to the company in operating its joint ventures.
For the third quarter of the fiscal year 2022, which ended September 30, NOA’s combined revenue increased 28.9% year-over-year to C$269.62 million ($201.70 million). During the same period, the company’s gross profit increased 13.2% year-over-year to C$24.57 million ($18.38 million), while its operating income increased 22.8% year-over-year to C$17.65 million ($13.20 million).
This growth was driven by NOA’s core businesses and subsidiaries operating at better than historical levels. Nuna Group of Companies had its best financial quarter on record, driven by the activity at the gold mine in Northern Ontario. Revised unit rates to adjust for the impact of inflation and improved utilization (62% compared to 52% in Q3 2021) in the company’s core business also contributed to the increase.
As a result, NOA’s adjusted EBITDA for the quarter increased 26.4% year-over-year to a record C$60.11 million ($44.97 million). The company’s adjusted net earnings came in at C$17.56 million ($13.14) or C$0.65 per share, up 24.3% and 30% year-over-year, respectively.
Analysts expect NOA’s revenue and EPS for the current fiscal to increase 6.1% and 9.3% year-over-year to $614.61 million or $1.63, respectively.
The stock has gained 13.4% over the past month and 23.2% over the past six months to close the last trading session at $14.62, above its 50-day and 200-day moving averages of $13.35 and $12.22, respectively.
It is no surprise that NOA has an overall A rating, which translates to Strong Buy in our POWR Ratings system. It also has an A grade for Momentum and a B for Value, Stability, Sentiment, and Quality.
NOA is ranked #2 of the 43 stocks in the B-rated Energy – Services industry. All ratings for NOA are available here.
Overseas Shipholding Group, Inc. (OSG)
As an energy transporter, OSG owns and operates a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products. The company charters its vessels to customers for voyages for specific periods at fixed daily amounts through time charters and for specific voyages at spot rates.
On December 8, 2022, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA (AMSC) for an additional three-year term, beginning in December 2023. With these extensions, seven vessels will continue on lease from AMSC as key contributors to OSG’s steady and robust earnings.
On November 15, OSG announced that it had agreed to purchase five million shares of the company’s common stock from Cyrus Capital at $2.86 per share for a total of $14.30 million. The transaction, demonstrating the company’s confidence in its prospects, was supposed to be completed on the same day.
Sam Norton, the President and CEO of OSG, stated, “The price paid in this share purchase equates to an enterprise value of roughly 4.5 times expected 2022 adjusted EBITDA, an implied valuation which we consider to be very attractive.”
During the third quarter of the fiscal year that ended September 30, 2022, OSG’s shipping revenues increased 31% year-over-year to $123.06 million, while its operating income came in at $22.43 million, compared to an operating loss of $5.64 million during the previous-year quarter.
During the same period, the company’s net income came in at $13.25 billion or $0.15 per share, compared to a net loss of $16 million or $0.18 per share during the third quarter of last fiscal.
The stock has gained 21.9% over the past month and 103.4% over the past year to close the last trading session at $3.62, above its 50-day and 200-day moving averages of $3.01 and $2.65, respectively.
OSG’s strong fundamentals are reflected in its overall A rating, which translates to a Strong Buy in our proprietary rating system. It also has an A grade for Momentum and Quality and a B for Growth, Value, and Sentiment.
Unsurprisingly, OSG tops the list of 46 stocks in the A-rated Shipping industry. Click here for all ratings of OSG.
APA shares rose $0.56 (+1.27%) in premarket trading Thursday. Year-to-date, APA has declined -4.03%, versus a 5.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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