The Fed’s aggressive monetary policy tightening to tame the surging inflation has been raising concerns over the economy slipping into a recession, leading to the stock market witnessing a massive correction. The major benchmark indexes hit their 52-week lows yesterday, lowering the valuations of almost all stocks.
Although the macroeconomic and geopolitical issues are expected to persist for longer than expected, many companies' business nature could help them survive the downturn. While small-cap stocks usually do not perform well amid such uncertainties, some outperforming stocks could now be wise investments at their discounted valuations.
Fundamentally sound small-cap stocks Valhi, Inc. (VHI), Pampa Energía S.A. (PAM), and Industrias Bachoco, S.A.B. de C.V. (IBA) have outperformed the broader markets lately but still look bargains at their current price levels. So, it could be wise to add these stocks to your portfolio now.
Valhi, Inc. (VHI)
With a $1.22 billion market capitalization, VHI engages in the chemicals, component products, and real estate management and development businesses internationally. The company offers titanium dioxide pigments and metals products, ergonomic computer support systems, and precision ball bearing slides, as well as owns and operates a facility for the processing, treating, and disposing of hazardous wastes.
For its fiscal 2022 first quarter ended December 31, 2021, VHI’s total net sales increased 23.6% year-over-year to $629 million. The company’s gross profit came in at $170.70 million, representing a 56.2% year-over-year improvement. Its total operating income came in at $100.70 million for the quarter, indicating a 96.3% rise from the prior-year period. While its net income increased 158.8% year-over-year to $63.40 million, its EPS grew 205.8% to $1.59. As of March 31, 2022, the company had $640 million in cash and cash equivalents.
The consensus EPS estimate of $9.57 for fiscal 2022 ending December 31, 2022, represents a 114.6% rise from the prior-year period. Analysts expect the company’s revenue to rise 15.9% from the prior-year period to $2.66 billion in the same fiscal year.
The stock’s 0.55x trailing-12-month Price/Sales is 59.1% lower than the 1.34x industry average. In terms of non-GAAP forward P/E, VHI is currently trading at 4.86x, which is 54.3% lower than the 10.64x industry average. Over the past six months, the stock has gained 61.3% to close yesterday’s trading session at $43.21.
VHI’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and Value and a B grade for Sentiment and Quality. Click here to see the additional ratings for VHI’s Stability and Momentum. VHI is ranked #1 of 92 stocks in the A-rated Chemicals industry.
Pampa Energía S.A. (PAM)
Based in Buenos Aires, Argentina, PAM is an integrated power company that generates and transmits electricity. The company also explores, produces, and distributes oil, gas, and petroleum products. It has a market capitalization of $1.12 billion.
For its fiscal 2022 first quarter ending March 31, 2022, PAM’s sales revenue increased 28.4% year-over-year to $412 million. The company’s gross profit came in at $164 million, indicating a 20.6% rise from the year-ago period. Its operating income came in at $133 million for the quarter, up 22% from the prior-year period. PAM’s net income came in at $100 million, representing a 194.1% rise from the prior-year period. Its earnings per ADS EPS increased 108% year-over-year to $1.79. The company had cash and cash equivalents of $132 million as of March 31, 2022.
Analysts expect the company’s EPS to be $5.10 for fiscal 2022 ending December 31, 2022, representing a marginal rise from the prior-year period. The consensus revenue estimate of $1.79 billion for the same fiscal year indicates a 17.7% year-over-year improvement. PAM’s EPS is expected to grow at a 7.6% rate per annum over the next five years.
The stock’s 1.38x forward Price/Sales is 38.9% lower than the 2.26x industry average. In terms of non-GAAP forward P/E, PAM is currently trading at 4.64x, which is 75.1% lower than the 18.61x industry average. Over the past three months, the stock has gained 6.6% to close yesterday’s trading session at $20.18.
PAM’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Momentum, Sentiment, and Quality. Click here to see the additional ratings for PAM’s Growth and Stability. PAM is ranked #4 of 55 stocks in the B-rated Utilities - Foreign industry.
Industrias Bachoco, S.A.B. de C.V. (IBA)
IBA operates as a poultry producer in Mexico and the United States, engaged in the breeding, processing, and marketing of chicken, eggs, swine, balanced animal feed, and other meat products. The company also produces medicines and vaccines for animal consumption and provides insurance coverage to its affiliates. Its products are sold through wholesalers, and retailers, directly to supermarkets and foodservice operators. It has a $2.06 billion market capitalization.
On January 24, 2022, IBA acquired two plants in Puebla and approximately 21 stores of RYC Alimentos, a multiprotein meat processor and distributor with production facilities in Puebla, Mexico. This acquisition will help IBA further expand its reach in Mexico.
IBA’s net sales for its fiscal 2022 first quarter ended March 31, 2022, increased 25.9% year-over-year to $1.23 billion. The company’s gross profit came in at $257.70 million, indicating a 21.6% rise from the year-ago period. Its operating income came in at $158 million for the quarter, up 22.8% from the prior-year period. IBA’s net income came in at $107 million, representing a 2.6% year-over-year improvement. Its earnings per ADR increased 2.8% year-over-year to $2.17. The company had $1.02 billion in cash and cash equivalents as of March 31, 2022.
Analysts expect the company’s revenue to be $4.53 billion for fiscal 2022 ending December 31, 2022, representing a 13.6% rise from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters.
The stock’s 0.43x forward Price/Sales is 61.5% lower than the 1.13x industry average. In terms of non-GAAP forward P/E, IBA is currently trading at 9.01x, 47.7% lower than the 17.22x industry average. Over the past three months, the stock has gained 2.8% to close yesterday’s trading session at $41.04.
IBA’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Value and Sentiment and a B grade for Stability and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for IBA’s Growth and Momentum here. IBA is ranked #1 of 87 stocks in the B-rated Food Makers industry.
VHI shares were trading at $42.61 per share on Friday afternoon, down $0.60 (-1.39%). Year-to-date, VHI has gained 48.92%, versus a -22.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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