Although inflation is down from its highs, the stock market is pricing in another rate hike next month. Given this uncertain backdrop, fundamentally sound stocks BP p.l.c. (BP), Sumco Corporation (SUOPY), and TORM plc (TRMD) might be good watchlist additions in May. These stocks have gained momentum lately and look well-positioned to maintain the same.
Inflation being on a downtrend for the ninth consecutive month and coming in at 5% in March have raised hopes of the Fed slowing down with future interest rate hikes. However, as inflation remains twice above the 2% target level, it might push the Fed to proceed with the anticipated 25-basis-point interest rate hike next month.
Atlanta Federal Reserve President Raphael Bostic has also envisioned one more quarter-point rate hike, then a hold ‘for quite some time.’ He also noted that he does not foresee the economy tilting into recession, even though Fed economists warned at the March FOMC meeting that a mild contraction is likely later in the year.
Current pricing indicates a 78% chance of a quarter-point hike next month, according to CME Group estimates.
With the likelihood of a rate hike pause in sight, investors could take advantage of the momentum in the featured stocks. Keeping that in mind, let’s evaluate the fundamentals of these stocks.
BP p.l.c. (BP)
BP is a global energy company headquartered in London, United Kingdom. The company operates through Gas & Low Carbon Energy; Oil Production & Operations; and Customers & Products segments.
On April 13, BP started oil production at Argos offshore platform while strengthening its leadership position in the deepwater U.S. Gulf of Mexico. With a gross production capacity of up to 140,000 barrels of oil per day, the semi-submersible platform would ultimately increase BP’s gross-operated production capacity in the Gulf of Mexico by an estimated 20%.
This addition reflects BP’s strategy of investing in high-quality oil and gas projects in order to meet the global energy demand while also investing in the energy transition.
BP’s four-year average dividend yield is 6.38%, while its annual dividend of $1.59 per share translates to a 4.01% yield on prevailing prices.
For the fourth quarter that ended December 31, 2022, BP’s total revenues and other income increased 34.7% year-over-year to $70.36 billion. The company’s profit for the period improved 332.9% from the year-ago value to $11.16 billion, while its operating cash flow came in at $13.57 billion, representing a 121.9% increase year-over-year. Moreover, its earnings per share increased 400.5% from the prior-year quarter to $58.36.
Analysts expect BP’s revenue to increase 18.6% year-over-year to $58.42 billion in the fiscal first quarter that ended on March 31, 2023, while its EPS is expected to amount to $1.42 in the same period. Moreover, it surpassed the EPS estimates in three of the trailing four quarters, which is impressive.
BP’s revenue and EBITDA grew at 14.9% and 16.8% CAGRs over the past three years. Over the same period, the company’s EBIT improved at a CAGR of 39.5%.
The stock has gained 40.7% over the past nine months to close the last trading session at $39.57. It is trading higher than its 50-day moving average of $39.05 and 200-day moving average of $34.09, indicating an uptrend.
BP’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #14 out of 42 stocks in the A-rated Foreign Oil & Gas industry. In addition, it has an A grade for Momentum and a B for Quality.
Beyond what I have stated above, we have also given BP grades for Growth, Value, Stability, and Sentiment. Get all BP ratings here.
Sumco Corporation (SUOPY)
Headquartered in Tokyo, Japan, SUOPY is engaged in the manufacture and sale of silicon wafers for the semiconductor industry. Its silicon products range from single-crystal silicon ingots to polished, epitaxial, silicon-on-insulator, and reclaimed polished wafers.
On February 21, the company announced a dividend of ¥45 per share ($0.34 per share) for the fiscal year 2022, representing an increase of 87.5% from the last year. SUOPY’s four-year average dividend yield is 2.47%, while its annual dividend of $1.32 per share translates to a 4.68% yield on prevailing prices. Its dividend has grown at a 21.4% CAGR over the past three years and a 17.9% CAGR over the past five years.
In terms of forward EV/EBITDA, SUOPY is trading at 3.60x, 72.2% lower than the industry average of 12.97x. Likewise, its forward EV/Sales and Price/Sales multiples of 1.35 and 1.48 are 48.6% and 40.8% lower than the 2.62x and 2.50x industry averages.
SUOPY’s net sales increased 31.4% year-over-year to ¥441.08 billion ($3.29 billion) in the fiscal year that ended December 31, 2022. Its gross profit grew 78.9% from the year-ago value to ¥143.35 billion ($1.07 billion), while its operating income improved 112.8% year-over-year to ¥109.68 billion ($818.61 million).
The company’s net income came in at ¥81.82 billion ($610.65 million), up 84.2% year-over-year. Also, its earnings per share stood at ¥200.49, registering an increase of 47.6% from the prior-year period.
Street expects SUOPY’s revenue for the first quarter (ended March 31, 2023) to increase marginally year-over-year to $785.14 million. Its revenue and net income have grown at a CAGRs of 13.8% and 28.5% over the past three years, while its EPS grew at a CAGR of 21.1% in the same period.
Over the past six months, the stock has gained 9.3% to close the last trading session at $27.94, higher than its 200-day moving average of $26.51.
SUOPY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Stability and a B for Value. In the B-rated Semiconductor & Wireless Chip industry, it is ranked #4 out of 91 stocks. Click here to see the other ratings of SUOPY for Growth, Sentiment, and Quality.
TORM plc (TRMD)
TRMD is engaged in the transportation of refined oil products and crude oil through its two operating segments: Tanker and Marine Exhaust. The company transports gasoline, jet fuel, naphtha, and gas oil, dirty petroleum products, such as fuel oil, and also engages in the production of advanced and green marine equipment.
On March 16, the company entered into an agreement to purchase three fuel-efficient 2013-built MR tanker vessels for a total cash consideration of $48.5 million and the issuance of 1.42 million shares. The transaction would increase TRMD’s total fleet to 88 vessels on a fully delivered basis.
On April 5, backed by its strong financials, the company paid an interim dividend of $2.59 per share for the fourth quarter of 2022. TRMD’s four-year average dividend yield is 4.06%, while its annual dividend translates to a 32.27% yield on the current prices. Also, its dividend payment has increased at a CAGR of 197.1% over the past five years.
For the fiscal year 2022 (ended December 31), TRMD’s revenue increased 133% year-over-year to $1.44 billion. Operating profit (EBIT) improved significantly from the same period last year to $601.42 million. The net profit attributable to TRMD came in at $562.57 million and $6.80 per share, compared to a net loss of $42.09 million and $0.54 per share in the prior-year period.
The consensus EPS estimate of $2.17 for the first quarter (ended March 31, 2023) represents a significant improvement year-over-year. The consensus revenue estimate of $335.24 million for the to-be-reported quarter indicates a 60.1% increase from the same period last year. The company has an excellent earnings surprise history, as it surpassed the consensus revenue estimates in each of the trailing four quarters.
Over the past three years, its revenue and EBITDA have grown at CAGRs of 27.7% and 55.6%, respectively. Likewise, its EPS grew at a $44.8% CAGR in the same period.
Shares of TRMD have gained 279% over the past year to close the last trading session at $32.10, higher than its 200-day moving average of $25.92.
It is no surprise that TRMD has an overall rating of B, translating to Buy in our POWR Ratings system. It also has a grade A for Momentum and Sentiment and a B for Growth and Quality.
The stock is ranked #4 among 40 stocks in the A-rated Shipping industry. Click here for additional ratings of TRMD (Value and Stability).
What To Do Next?
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BP shares were trading at $39.77 per share on Wednesday afternoon, up $0.20 (+0.51%). Year-to-date, BP has gained 14.96%, versus a 6.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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