Following a year of the Fed’s aggressive monetary policy, inflation rose at a slower rate in the final month of 2022, the biggest monthly decline since early in the pandemic. December’s Consumer Price Index (CPI) showed a 6.5% rise in prices over last year and a 0.1% decrease over the prior month, on par with consensus estimates compiled by Bloomberg. Also, the core CPI increased 5.7% year-over-year, compared to 6% in November.
After the release of the latest CPI report, market pricing pointed toward an increased probability that the Fed would approve a 0.25%-point rate increase at its next meeting on February 1.
This would represent another step down for the central bank after it approved four consecutive 0.75 percentage point hikes last year before slowing down to a 0.5-point increase in December. The Fed officials have projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023.
Moreover, Capital Economics Chief North American Economist Paul Ashworth recently said in a note that “after a final 50 basis points of tightening over the first quarter, taking the fed funds rate to a peak of close to 5%, we still expect the Fed to be cutting rates again before the end of this year.”
Given this backdrop, investors should consider investing in fundamentally strong stocks, The Mosaic Company (MOS), AutoNation, Inc. (AN), Ryerson Holding Corporation (RYI), and Bluegreen Vacations Holding Corporation (BVH), which currently look significantly undervalued compared to their industry peers.
The Mosaic Company (MOS)
MOS produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. The company operates through three segments: Phosphates; Potash; and Mosaic Fertilizantes.
In December, MOS declared a quarterly dividend of $0.20 per share on its common stock, payable on March 16, 2023. Its annual dividend of $0.80 yields 1.77% on the current market price. It has a four-year average dividend yield of 1.24%. Moreover, the company has raised its dividend payout at a CAGR of 47.6% over the past three years.
In terms of forward non-GAAP P/E, MOS is trading at 3.87x, which is 72.1% lower than the 13.86x industry average. The stock’s 3.55x forward EV/EBIT is 67.7% lower than the industry average of 10.99x, while its forward EV/EBITDA multiple of 2.96x is 60.5% lower than the industry average of 7.50x.
MOS’ net sales increased 56.5% year-over-year to $5.34 billion in the third quarter that ended September 30, 2022. Its gross margin increased 73.7% year-over-year to $1.50 billion, and net earnings attributable to MOS increased 126.3% year-over-year to $841.70 million.
In addition, its adjusted EPS attributable to MOS increased 138.5% year-over-year to $3.22, while its adjusted EBITDA increased 74% year-over-year to $1.68 billion.
Analysts expect the company’s EPS and revenue for the fiscal fourth quarter that ended December 2022 to increase 22.3% and 13.2% year-over-year to $2.39 and $4.35 billion, respectively.
Over the past year, the stock has gained 12.1% to close the last trading session at $46.98.
MOS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B for Growth and Quality. The stock is ranked #8 among 28 in the Agriculture industry.
Beyond what we stated above, we have also given MOS grades for Momentum, Stability, and Sentiment. Get all MOS ratings here.
AutoNation, Inc. (AN)
Automotive retailer AN offers a range of new and used vehicles, wholesale parts, repair, maintenance, and collision services. It also provides automotive finance and insurance products that comprise vehicle services and other protection products and arranges finance for vehicle purchases through third-party finance sources.
On December 12, AN announced an agreement to acquire RepairSmith, a full-service mobile solution for automotive repair and maintenance with a significant operational footprint in the southern and western United States.
The acquisition of RepairSmith will provide AN’s After-Sales business with another channel to provide service to its existing customers and expand its customer base.
Moreover, on November 15, AN announced its acquisition of an approximately 6.1% minority ownership stake in TrueCar, Inc. (TRUE), a leading automotive digital marketplace that lets auto buyers and sellers connect to its nationwide network of Certified Dealers. AN’s decision to invest in TrueCar indicates the company’s continued commitment to emerging technologies and constant focus on providing peerless customer experiences.
The stock’s 0.55x forward non-GAAP PEG is 60.7% lower than the industry average of 1.41x. In terms of forward non-GAAP P/E, AN is trading at 4.80x, which is 66.2% lower than the 14.20x industry average and its forward Price/Sales multiple of 0.21x is 76.9% lower than the industry average of 0.93x.
During the fiscal 2022 third quarter ended September 30, 2022, AN’s revenue rose 4.5% year-over-year to $6.67 billion. Its gross profit increased 3.2% year-over-year to $1.31 billion. The company’s adjusted EPS came in at $6.00 for the quarter, representing a 17.2% rise from the prior-year quarter.
The company’s EPS is likely to rise 33% from the prior year to $24.12 for the fiscal year that ended December 2022. Its revenue is expected to grow 3.7% year-over-year to $26.80 billion in the same year. AN has surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 14.1% over the past nine months, closing its last trading session at $115.92.
Its strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. AN is ranked #5 of 21 stocks in the B-rated Auto Dealers & Rentals industry.
Click here to see the additional ratings for AN for Stability, Growth, Sentiment, and Momentum.
Ryerson Holding Corporation (RYI)
RYI and its subsidiaries process and distribute industrial metals in the United States, Canada, Mexico, and China. It offers various products in carbon steel, stainless steel, alloy steel, aluminum, nickel, and red metals in different shapes and forms.
On November 1, 2022, RYI announced the acquisition of Excelsior, Inc, a full-service fabrication and machining company with advanced processing capabilities, including machining centers, laser and waterjet cutting, welding, and complex assemblies.
Steve Bosway, Ryerson’s President, West Region, said, “This acquisition strengthens RYI’s network of value-added service centers, allowing us to provide better experiences and an extended suite of metal processing solutions for customers in the Western United States.”
On November 2, 2022, RYI declared a quarterly cash dividend of $0.16 per share of common stock that was payable on December 15, 2022. Its current dividend of $0.54 yields 1.65% annually, higher than its four-year average dividend yield of 0.36%.
RYI’s forward Price/Sales multiple of 0.19x is 80.4% lower than the industry average of 1.16x. In terms of forward non-GAAP P/E, it is trading at 2.75x, which is 80.1% lower than the 13.86x industry average. The stock’s 0.30x forward EV/Sales is 80.3% lower than the industry average of 1.54x.
RYI reported net sales of 1.54 billion in the fiscal third quarter that ended September 30, 2022. Its net income increased by 10.2% year-over-year to $50 million, while its EPS increased by 15% year-over-year to $1.46.
Street expects RYI’s revenue to increase 10.2% year-over-year to $6.25 billion in the fiscal year ended December 2022. Its EPS is expected to increase 59.1% year-over-year to $11.87 in the same year. Also, the company has surpassed EPS and revenue estimates in three of the four trailing quarters.
The stock has gained 49.9% over the past six months to close the last trading session at $32.70. It has gained 26.4% over the past year.
It is no surprise that RYI has an overall B rating, which translates to a Buy in our proprietary rating system.
RYI has an A grade for Value and a B grade for Quality. Within the Industrial – Metals industry, it is ranked #6 out of 37 stocks.
In addition to the POWR Ratings grades highlighted above, you can see RYI ratings for Growth, Momentum, Sentiment, and Stability.
Bluegreen Vacations Holding Corporation (BVH)
BVH is a vacation ownership organization that manages resorts in both leisure and urban regions and advertises and sells vacation ownership interests (VOI). It also provides financing to qualified VOI buyers and management services for vacation clubs and homeowners’ associations.
On October 12, BVH announced the acquisition of two buildings in Vail, Colorado, the neighborhood of Streamside at Vail Resort, along with a 320-room resort and spa in Panama City Beach, Florida. BVH should strategically benefit from expansionary policies.
BVH pays a $0.45 per share dividend annually, which translates to a 1.83% yield on the current price. Its dividend payouts have grown at a 32.8% CAGR over the past three years.
In terms of forward EV/EBIT, BVH is trading at 7.66x, which is 43.5% lower than the 13.55x industry average. Its forward non-GAAP P/E multiple of 8.04x is 43.4% lower than the industry average of 14.20x. The stock’s 0.52x forward Price/Sales is 44.5% lower than the industry average of 0.93x,
For the fiscal 2022 third quarter ended September 30, 2022, BVH’s total revenues increased 16.9% from the year-ago value to $250.84 million. Its net income increased 1.2% year-over-year to $27.65 million, and its EPS increased 12.3% from the prior year’s quarter to $1.19.
The consensus revenue estimate of $208.46 million for the fiscal fourth quarter ended December 2022 reflects a rise of 2.7% year-over-year. The consensus EPS estimate of $0.64 for the same quarter indicates an 8.1% increase from the previous-year quarter.
The stock has gained 59.3% over the past three months to close the last trading session at $27.77.
BVH’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Sentiment and Quality. BVH is ranked #1 of 22 stocks in the B-rated Travel - Hotels/Resorts industry.
Click here to see additional ratings of BVH for Stability, Growth, and Momentum.
MOS shares were trading at $45.28 per share on Friday morning, down $1.70 (-3.62%). Year-to-date, MOS has gained 3.21%, versus a 3.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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