The effects of the Fed’s restrictive policies have shown results as inflation continues to cool. However, with the central bank determined to bring it down further by raising interest rates, it risks causing a recession this year.
In such a scenario, investors could look to add stocks that have been witnessing strong buying activity, such as QBE Insurance Group Limited (QBIEY), Reinsurance Group of America, Incorporated (RGA), and Qantas Airways Limited (QABSY), to their watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss the factors likely to keep the stock market under pressure.
Last week’s release of March’s Consumer Price Index (CPI) report revealed that inflation remains on its downward trend. CPI rose 5%, marking its slowest annual increase since May 2021, but it still is significantly above the Fed’s 2% target.
Moreover, the core CPI, which excludes food and energy, increased 0.4% sequentially and 5.6% annually. Jobs growth also remains strong as the economy added 236,000 jobs in March.
Although inflation has moderated and the tightening cycle may be nearing its end, St. Louis Federal Reserve President, James Bullard, feels the benchmark rate will need to rise another half of a percentage point beyond that level to between 5.50% and 5.75%. Minutes from the Fed’s meeting in March show that the staff believes there could be a mild recession this year.
Policymakers and analysts fear the economy could tip into a recession due to tighter lending standards and further interest rate hikes. To that end, it could be wise for investors to add fundamentally strong stocks QBIEY, RGA, and QABSY to their watchlist, as they have witnessed strong buying activity and are likely to continue their momentum.
QBE Insurance Group Limited (QBIEY)
Headquartered in Sydney, Australia, QBIEY underwrites general insurance and reinsurance risks. The company offers a range of commercial, personal, and specialty products, as well as risk management solutions.
In terms of forward EV/Sales, QBIEY’s 1.13x is 41.2% lower than the 1.93x industry average. Its 8.19x forward EV/EBITDA is 20.1% lower than the 10.25x industry average. Likewise, its 0.98x forward Price/Sales is 53.9% lower than the 2.12x industry average.
QBIEY’s adjusted net earned premium increased 7.2% year-over-year to $14.77 billion for the fiscal year that ended December 31, 2022. The company’s adjusted insurance profit increased 54.5% year-over-year to $1.66 billion.
Its adjusted net profit after tax rose 5.2% over the prior-year period to $847 million. Its adjusted EPS came in at 56.7¢, representing a 4.4% increase from the prior-year period.
Analysts expect QBIEY’s revenue for fiscal 2023 to increase 6.4% year-over-year to $15.23 billion. Over the past six months, the stock has gained 34.5% to close the last trading session at $10.04.
QBIEY’s stock is trading above its 50-day and 200-day moving averages of $9.76 and $8.70.
QBIEY’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Insurance - Property & Casualty industry, it is ranked #7 out of 56 stocks. The stock has an A grade for Growth and Stability and a B for Momentum. Click here to see the additional POWR Ratings of QBIEY for Value, Sentiment, and Quality.
Reinsurance Group of America, Incorporated (RGA)
RGA engages in the reinsurance business. The company offers individual and group life and health insurance products, critical illness, disability, and longevity products, asset-intensive and financial reinsurance products, and other capital-motivated solutions.
On April 4, 2023, RGA announced its agreement with Daido Life Insurance Company (Daido Life), a subsidiary of T&D Holdings, Inc. (GLG), to reinsure 153 billion JPY of statutory reserves through coinsurance.
RGA’s Vice President, Business Development, Global Financial Solutions, Simon Armand-Smith, stated, “This is one of a number of recent asset-intensive transactions that RGA has completed in the Japanese market, and we look forward to continuing to support our clients with their in-force capital management and new business objectives.”
In terms of forward EV/Sales, RGA’s 0.60x is 68.7% lower than the 1.93x industry average. Its 6.85x forward EV/EBIT is 36.6% lower than the 10.80x industry average. Likewise, its 0.54x forward Price/Sales is 74.6% lower than the 2.12x industry average.
RGA’s net premiums increased 1.1% year-over-year to $3.45 billion for the fourth quarter that ended December 31, 2022. The company’s adjusted operating income came in at $202 million, compared to an adjusted operating loss of $38 million in the prior-year quarter.
Its net income available to RGA shareholders rose 30.8% year-over-year to $204 million. Moreover, its adjusted operating EPS came in at $2.99, compared to an adjusted operating loss per share of $0.56 in the year-ago quarter.
RGA’s EPS and revenue for the quarter that ended March 31, 2023, are expected to increase 614.6% and 6.6% year-over-year to $3.36 and $4.19 billion, respectively. Over the past year, the stock has gained 20% to close the last trading session at $140.61. RGA’s stock is trading above its 50-day and 200-day moving averages of $138.60 and $134.86.
RGA’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which equates to a Buy.
It is ranked #4 out of 9 stocks in the A-rated Insurance - Reinsurance industry. In addition, it has an A grade for Growth and a B for Momentum. To see the other ratings of RGA for Value, Stability, Sentiment, and Quality, click here.
Qantas Airways Limited (QABSY)
Based in Mascot, Australia, QABSY provides air transportation services worldwide. The company operates through Qantas Domestic, Qantas International, Jetstar Group, and Qantas Loyalty segments.
On February 27, 2023, Airbus SE and QABSY planned to announce the first investment from a $200 million fund to develop a sustainable aviation fuel (SAF) industry in Australia. This is expected to help QABSY meet its target of net zero emissions by 2025, as it anticipates about 60% of its fuel to be SAF.
In terms of forward non-GAAP P/E, QABSY’s 6.48x is 61.3% lower than the 16.72x industry average. Its 3.21x forward EV/EBITDA is 69.6% lower than the 10.56x industry average. Likewise, its 0.72x forward EV/Sales is 55.3% lower than the 1.62x industry average.
QABSY’s revenue increased 222.3% year-over-year to $9.91 billion for the half-year that ended December 31, 2022. The company’s statutory profit for the period came in at $1.00 billion, compared to a statutory loss for the period of $456 million. Its statutory EPS came in at 52.7¢, compared to a statutory loss per share of 24.2¢ in the prior-year period.
QABSY’s revenue for fiscal 2023 is expected to increase 108% year-over-year to $13.09 billion. Over the past nine months, the stock has gained 37.7% to close the last trading session at $21.87. QABSY’s stock is trading above its 100-day and 200-day moving averages of $21.73 and $19.41.
It is no surprise that QABSY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
Within the Airlines industry, it is ranked first out of 28 stocks. The stock has an A grade for Growth and Quality and a B for Value. In total, we rate QABSY on eight different levels. Beyond what we stated above, we have also given QABSY a grade for Momentum, Stability, and Sentiment. Click here to access all the ratings.
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QBIEY shares were trading at $10.04 per share on Thursday morning, up $0.05 (+0.53%). Year-to-date, QBIEY has gained 11.93%, versus a 8.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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