Market volatility has resurged recently due to a series of disappointing corporate earnings reports, combined with continued disruption in the banking sector, prompting a widespread sell-off. Market downturn creates numerous buy-the-dip opportunities for long-term investors.
Therefore, investors could consider buying high-quality, cheap stocks, Murphy USA Inc. (MUSA) and Stride, Inc. (LRN), with significant potential in the long run. Let’s discuss this in detail.
Larry McDonald, an ex-Lehman Brothers trader and the author of “A Colossal Failure of Common Sense,” has raised concerns about the global financial system, citing the sudden failures of Silicon Valley Bank and Signature Bank, UBS’ emergency takeover of Credit Suisse, and Britain’s bond-market disaster.
McDonald said, “Early signs of a credit crunch and ongoing turmoil in the regional-banking sector suggest there’s more trouble ahead.” He also warned that stocks might drop as much as 30% by early May as rising interest rates choke the economy, leading frustrated investors to switch from equities to bonds.
Investors face an uphill battle as the stock market experiences a resurgence of volatility fueled by the extended turmoil in the banking sector. This has triggered a massive sell-off in the equity markets over the past year.
Market sell-offs present an attractive opportunity for long-term investors to capitalize on the “buy the dip” strategy and purchase quality stocks MUSA and LRN, which look positioned to surge soon.
Moreover, “Big Short” investor Michael Burry corrected himself on his earlier dire stock market outlook and congratulated investors for staying the course and buying the dip.
Against this backdrop, let’s discuss the fundamentals of these stocks in detail.
Murphy USA Inc. (MUSA)
MUSA markets retail motor fuel products and merchandise through a chain of stores. It supplies refined products to retail gasoline stores and unbranded wholesale customers; and operates non-fuel convenience stores. Additionally, MUSA owns product supply and wholesale assets such as product distribution terminals and pipeline positions.
On February 9, MUSA declared a quarterly dividend of $0.37 per share, or $1.48 per share on an annualized basis, a 6% increase from the previous quarter. The dividend was paid on March 1, 2023.
In terms of forward EV/Sales, MUSA is trading at 0.38x, 66% lower than the industry average of 1.12x. The stock’s forward Price/Sales of 0.28x is 66.9% lower than the industry average of 0.85x.
MUSA’s total operating revenues increased 12.6% year-over-year to $5.37 billion in the fourth quarter that ended December 31, 2022. Its income from operations rose 7.8% from the year-ago value to $173.50 million. Also, its adjusted EBITDA grew 6.5% from the prior year’s period to $230.30 million.
Furthermore, the company’s net income and EPS came in at $117.70 million and $5.21, up 8.2% and 23.2% year-over-year, respectively.
The consensus revenue estimate of $21.54 billion for the fiscal year (ending December 2024) reflects a marginal year-over-year improvement. Likewise, the consensus EPS estimate of $20.47 for the same year indicates a 3.3% rise year-over-year. Moreover, the company surpassed its consensus revenue estimates in all four trailing quarters, which is impressive.
The stock has gained 10.8% over the past month to close the last trading session at $275.38.
MUSA’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
MUSA has a B grade for Quality and Value. It has ranked #13 in the 44-stock Specialty Retailers industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MUSA’s ratings for Stability, Growth, Sentiment, and Momentum here.
Stride, Inc. (LRN)
LRN is an education services company that specializes in virtual and blended learning. It offers a wide range of technology-based products and services, including customized solutions for its two primary lines of business, General Education and Career Learning.
Also, on March 2, LRN partnered with Rebel Girls, a global, multi-platform girl empowerment brand, to offer interactive and diverse content featuring the stories of girls and women globally. This content is available on the Stride Learning Hub, a digital teaching tool that allows educators to customize courses with Stride activities, lessons, and assessments.
This partnership would improve the learning experience for LRN’s users, boosting its growth and profitability.
In terms of forward EV/EBITDA, LRN is trading at 6.74x, 27.5% lower than the industry average of 9.30x. The stock’s forward Price/Book multiple of 1.94 is 23.3% lower than the industry average of 2.52.
For the third quarter that ended March 31, 2023, LRN’s adjusted operating income grew 15.5% year-over-year to $80.22 million. Its adjusted EBITDA rose 15% from the prior year’s period to $103.89 million. Furthermore, its net income and EPS increased 29.2% and 27.5% year-over-year to $55.46 million and $1.30, respectively.
Analysts expect LRN’s revenue to increase 8.2% year-over-year to $1.83 billion for the fiscal year ending June 2023. The company’s EPS for the current year is expected to grow 13.9% from the previous year to $2.87. Moreover, the company topped the consensus revenue estimates in all four trailing quarters.
Shares of LRN have gained 30.8% over the past six months to close the last trading session at $42.52.
LRN’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
LRN has a B grade for Value and Growth. The stock is ranked #6 out of 21 stocks in the B-rated Outsourcing - Education Services industry.
Click here to access additional LRN ratings for Quality, Stability, Sentiment, and Momentum.
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MUSA shares were trading at $274.76 per share on Friday afternoon, down $0.62 (-0.23%). Year-to-date, MUSA has declined -1.58%, versus a 8.94% 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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