While hopes of a sharp decline in inflation helped the market make a good start to the year, a sharper-than-expected decline in retail sales during the holiday month and a third consecutive month of decline in industrial activity have been an unpleasant reminder about the double-edged nature of interest rate hikes.
This week’s earnings releases and updates on the S&P Case-Shiller Home Price Index, new home sales, durable goods orders, and consumer sentiment could indicate an interest-rate-driven economic slowdown and reinforce the expectation for a recession in the U.S.
Moreover, with the U.S. economy perilously close to defaulting on its stratospheric debt, unless the representative can agree to buy the government more space by raising the debt ceiling, the market volatility is unlikely to ease anytime soon.
However, this environment of macroeconomic uncertainty also presents ideal opportunities for loading up on fundamentally strong businesses with stable microeconomic prospects at attractive prices.
To that end, Gilead Sciences, Inc. (GILD), Kronos Worldwide, Inc. (KRO), and Bluegreen Vacations Holding Corporation (BVH) appear to be assets in which investors could get the best and most out of their investments.
Gilead Sciences, Inc. (GILD)
As a biopharmaceutical company, GILD primarily develops and commercializes medicine to prevent and treat diseases such as HIV, viral hepatitis, and cancer.
On January 3, GILD and EVOQ Therapeutics, Inc. announced a collaboration and licensing agreement. Under the agreement, GILD would receive the rights to exclusively license EVOQ’s NanoDisc technology to develop and commercialize EVOQ’s proprietary technology for treating rheumatoid arthritis (RA) and lupus.
On December 29, 2022, GILD paid its quarterly cash dividend of $0.73 per share. The company pays a dividend of $2.92 per share annually. This translates to a yield of 3.52% at the current price, comparable to the four-year average dividend yield of 4%.
GILD has increased its dividend payout for seven consecutive years. Its dividends grew at a 7% CAGR over the past five years.
On December 27, GILD and Jounce Therapeutics, Inc. (JNCE) amended their existing license agreement for GS-1811 (formerly JTX-1811). This amendment would enable GILD to acquire all remaining rights to potential first-in-class Immunotherapy GS-1811 from JNCE as a potential treatment for solid tumors.
During the third quarter of the fiscal year 2022, which ended September 30, excluding Veklury’s (remdesivir) lower sales primarily driven by lower rates of COVID-19-related hospitalizations compared to the third quarter of 2021, GILD’s total product sales increased 11% year-over-year to $6.1 billion. Increased sales of HIV and oncology products partially offset the drawdown in Veklury’s sales.
During the same period, the non-GAAP net income attributable to GILD came in at $2.39 billion, or $1.90 per share. The company’s total liabilities stood at $41.50 billion as of September 30, 2022, compared to $46.89 billion as of December 31, 2021, driven by the repayment of $1.0 billion debt.
GILD also made a cash payment of $414 million to acquire MiroBio, paid dividends of $928 million, and repurchased $180 million of common stock during the quarter.
Analysts expect GILD’s EPS for the quarter that ended on December 31, 2022, to increase 115.9% year-over-year to $1.49. The company has further impressed by surpassing the consensus EPS estimates in three of the trailing four quarters.
In terms of the forward P/E, GILD is currently trading at 11.68x, 42.6% lower than the industry average of 20.36x. Also, the company’s forward EV/EBITDA and Price/Sales multiples of 8.82 and 3.92 are 35.2% and 16.8% lower than the respective industry averages of 13.62 and 4.71.
The stock has gained marginally over the past month and 34.9% over the past six months to close the last trading session at $83.01.
GILD’s fundamental strength and solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GILD also has an A grade for Value and a B for Sentiment and Quality. It is ranked #4 of 400 stocks in the Biotech industry.
Click here for additional ratings for GILD's Growth, Momentum, and Stability.
Kronos Worldwide, Inc. (KRO)
KRO is a global producer and seller of titanium dioxide pigments (TiO2), a base industrial product used for diverse applications. The company sells and provides technical expertise for its products in Europe, North America, and the Asia Pacific.
On December 15, 2022, KRO paid its quarterly dividend of $0.19 per share. The company pays $0.76 as a dividend annually. This translates to a yield of 6.97% on the current price, above the 4-year average yield of 5.65%.
The current dividend payout ratio is 55.15%. The company’s dividend payouts have grown at 4.8% CAGR over the last five years.
During the nine months of the fiscal, higher average TiO2 selling prices helped KRO offset lower sales volumes in its European, export, and North American markets to increase its net sales by 10% year-over-year to $1.59 billion. During the same period, the company’s income from operations and EBITDA also increased 32.7% and 30.3% year-over-year to $179.3 million and $210.7 million, respectively.
As a result, KRO’s net income increased 53% and 54.3% year-over-year to $124.4 million and $1.08, respectively.
Analysts expect KRO’s EPS for the fiscal year ended December 31, 2022, to increase 4.1% year-over-year to $1.02.
In terms of forward P/E, KRO is currently trading at 10.68x, 23.7% lower than the industry average of 14x. The stock’s forward EV/Sales multiple of 0.70 is 54% below the industry average of 1.51. Also, its forward Price/Sales multiple of 0.66 compares favorably with the industry average of 1.16.
The stock has gained 19.5% over the past month to close the last trading session at $10.90.
KRO’s stable prospects have earned it an overall rating of B, which translates to Buy in our POWR Ratings system. It has an A grade for Value and a B for Stability.
KRO is ranked #37 of 89 stocks in the B-rated Chemicals industry.
Beyond what has been stated above, we have also given KRO grades for Growth, Momentum, Quality, and Sentiment. Get all KRO ratings here.
Bluegreen Vacations Holding Corporation (BVH)
As a vacation ownership company, BVH markets and sells vacation ownership interests (VOI) and manages resorts in both leisure and urban regions. It also offers finance to qualified VOI buyers and management services to vacation clubs and homeowners’ associations.
On December 30, 2022, BVH announced that 3,040,882 shares of its Class A common stock were properly tendered in response to its cash tender offer to purchase up to 4,500,000 shares at a price of $25.00 per share.
Hence, in accordance with the terms of the offer, the company would purchase all the tendered shares for an aggregate price of approximately $76.0 million, excluding fees and expenses.
Since BVH offered to purchase more shares than validly tendered, this purchase program has increased the intrinsic value of outstanding shares while demonstrating the confidence of both management and existing shareholders in the company's prospects.
On November 21, BVH paid its quarterly cash dividend of $0.15 per share. The company’s annual dividend payout of $0.45 per share translates to a yield of 1.52% at the current price, better than the four-year average dividend yield of 0.76%. Dividends have grown at a stunning 32.2% CAGR for the last five years.
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. Both properties have well-established, desirable amenities, which provide the company with an exciting product to offer its owners.
For the fiscal 2022 third quarter ended September 30, 2022, BVH’s total revenues increased 16.9% year-over-year to $250.84 million. During the same period, the company’s net income and adjusted EBITDA came in at $27.65 million and $46.60 million, comparable to the previous-year quarter. The company’s EPS increased 12.3% year-over-year to $1.19.
Analysts expect BVH’s revenue and EPS for the fiscal year that ended December 31, 2022, to come in at $899.70 million and $3.46, up 18.8% and 20.1% year-over-year, respectively. Revenue and EPS are expected to increase by a further 4.4% and 8.3% during the current fiscal year to $939.24 million and $3.74, respectively.
In terms of forward non-GAAP P/E, BVH is trading at 8.55x, which is 40.3% lower than the industry average of 14.32x. Its forward EV/EBITDA and Price/Sales multiple of 8.20 and 0.55 also compare favorably to the respective industry averages of 9.82 and 0.93.
The stock has gained 20.7% over the past month to close the last trading session at $29.55.
BVH’s POWR Ratings reflect its positive outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It also has an A grade for Value and Sentiment and a B for Quality.
Unsurprisingly, BVH tops the list of 22 stocks in the B-rated Travel – Hotels/Resorts industry.
Click here for additional ratings for BVH's Stability, Growth, and Momentum.
GILD shares were trading at $83.82 per share on Monday afternoon, up $0.81 (+0.98%). Year-to-date, GILD has declined -2.36%, versus a 5.25% 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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