Despite signs of easing, inflation remains above the Federal Reserve’s target of 2%. Hence, considering the potential for further interest rate increases and an economic downturn, it could be wise to find solace in stable stocks Ingredion Incorporated (INGR), PC Connection, Inc. (CNXN), and Omega Flex, Inc. (OFLX) this week, which could help navigate the uncertain economic conditions.
Let’s understand this in detail.
Last month, inflation slowed for the 11th consecutive month, with the year-over-year rate dropping from 4.9% to 4%. However, core inflation, a better indicator of underlying inflation, remains elevated at an annual rate of 5.3%. Core inflation rose by 0.4% in May, maintaining a consistent monthly average of 0.4% throughout 2023.
Despite inflation showing signs of cooling, it “remains well above” the Fed’s target of 2%. Fed Chairman Jerome Powell indicated that the pause in rate hikes this month was a temporary break rather than a signal of the central bank concluding its hiking cycle. He has reiterated the likelihood of further interest rate increases in the future.
Powell said, “Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.” Fed officials predict a cumulative rise of 0.5 percentage points by year-end, indicating two more quarter-point hikes. The Fed’s key borrowing rate currently hovers between the 5% to 5.25% range.
The World Bank’s most recent Global Economic Prospects report suggests that global growth has severely slowed, and the risk of financial stress in emerging markets and developing countries is intensifying amid elevated global interest rates.
Advanced economies are expected to experience a substantial growth deceleration, dropping from 2.6% in 2022 to 0.7% this year and remaining weak in 2024. Moreover, after a 1.1% growth in 2023, the U.S. economy is set to decelerate to 0.8% in 2024 due to the lingering effects of higher interest rates.
Considering the prevailing circumstances, investing in stable stocks INGR, CNXN, and OFLX could be wise, as they could provide resilience in the face of an economic downturn.
Let’s take a closer look at the fundamentals of these stocks.
Ingredion Incorporated (INGR)
INGR is an ingredients solutions supplier that turns maize, tapioca, potatoes, stevia, grains, fruits, and vegetables into value-added ingredients and biomaterials for food, beverage, brewing, and other industries. The company operates through four segments, North America; South America; Asia-Pacific; and Europe, Middle East and Africa (EMEA).
On the backs of strong first-quarter results, the company raised its full-year outlook, reflecting improved price and customer mix management and diligent cost control. The projected full-year 2023 reported and adjusted EPS are now anticipated to be in the range of $8.85- $9.35 and $8.70-$9.40, respectively.
In addition, INGR’s net sales are expected to increase by high single-digits to low double-digits, reflecting lower sales volumes and projected corn costs. Also, the company’s reported and adjusted operating income are expected to grow by high double-digits.
INGR’s trailing-12-month EBITDA margin of 12.95% is 31.6% higher than the industry average of 9.85%. Also, its trailing-12-month net income margin and CAPEX/Sales of 6.75% and 3.55% compare to the industry averages of 3.16% and 3.16%, respectively.
For the first quarter that ended March 31, 2023, INGR’s net sales increased 12.9% year-over-year to $2.14 billion. Its adjusted operating income rose 39% from the year-ago value to $296 million. Also, the company’s adjusted net income and adjusted EPS grew 42.4% and 43.6% year-over-year to $188 million and $2.80, respectively.
INGR’s revenue is expected to grow 8.6% year-over-year to $8.63 billion for the fiscal year ending December 2023. The consensus EPS estimate for the ongoing year is expected to increase 21.9% year-over-year to $9.08. Moreover, the company topped its consensus EPS estimates in all four trailing quarters, which is impressive.
Over the past year, shares of INGR have gained 20.6% to close the last trading session at $103.73. The stock has a 24-month beta of 0.46, indicating greater stability than the broader market.
INGR’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
INGR has a B grade for Growth, Stability, and Sentiment. It is ranked #17 in the 81-stock B-rated Food Makers industry.
Click here to access additional INGR ratings (Value, Quality, and Momentum).
PC Connection, Inc. (CNXN)
CNXN is a provider of diverse Information Technology (IT) solutions. Its segments include Business Solutions; Enterprise Solutions; and Public Sector Solutions. The company’s offerings encompass IT products such as computer systems, data center solutions, software, peripheral equipment, networking communications, and related accessories.
CNXN’s trailing-12-month net income margin of 2.66% is 35% higher than the 1.97% industry average. In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 11.02%, 9.11%, and 7.30% compare to the respective industry averages of 0.50%, 1.66%, and 0.02%.
For the first quarter that ended March 31, 2023, CNXN’s net other income came in at $1.29 million, compared to a loss of $3 thousand in the prior year’s period. Also, its cash inflow from operating activities stood at $19.51 million, compared to a cash outflow of $38.29 million during the same period.
Furthermore, as of March 31, 2023, the company’s cash and cash equivalents stood at $134.81 million, compared to $122.93 million as of December 31, 2022. Its current assets amounted to $974.12 million, compared to $955.79 million as of December 31, 2022.
The consensus revenue estimate of $3.25 billion for the fiscal year (ending December 2024) reflects a 3.4% year-over-year improvement. Likewise, the consensus EPS estimate of $3.58 for the same period reflects a 17.6% rise year-over-year.
The stock has gained 4% over the past month to close the last trading session at $45.86. CNXN has a 24-month beta of 0.70.
CNXN’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
CNXN has a B grade for Momentum, Stability, and Quality. It has ranked #12 in the 81-stock Technology - Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see CNXN ratings for Value, Growth, and Sentiment here.
Omega Flex, Inc. (OFLX)
OFLX manufactures and distributes flexible metal hoses and associated items. Its offerings include flexible gas piping for residential and commercial buildings, fittings, and corrugated medical tubing for hospitals, ambulatory care centers, dental, physician, and veterinary clinics, laboratories, and other facilities.
The stock’s trailing-12-month gross profit margin of 62.66% is 109.9% higher than the industry average of 29.85%. Furthermore, its trailing-12-month EBITDA margin and net income margin of 25.80% and 19.26% are 92.9% and 203.4% higher than the industry averages of 13.37% and 6.35%, respectively.
For the first quarter that ended March 31, 2023, OFLX’s income before income taxes increased 3.7% year-over-year to $7.62 million. Its net income and EPS grew 5% and 5.6% from the year-ago values to $5.74 million and $0.57, respectively.
Also, the company’s cash inflow from operating activities was $1.47 million, compared to a cash outflow of $3.88 million in the prior year’s period.
Shares of OFLX have gained 10.4% over the past six months to close the last trading session at $105.40. The stock has a 24-month beta of 0.79
OFLX’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Momentum and Quality and a B for Stability. It has ranked #42 out of 91 stocks within the B-rated Industrial - Equipment industry.
Click here to access additional OFLX ratings for Sentiment, Value, and Growth.
What To Do Next?
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INGR shares were trading at $104.32 per share on Thursday afternoon, up $0.59 (+0.57%). Year-to-date, INGR has gained 7.28%, versus a 14.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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