The S&P 500 has more than doubled since the onset of the COVID-19 pandemic in March 2020. The benchmark finished a streak of eight straight all-time closing highs last week, its longest such stretch since 1997. It has registered 65 all-time highs so far this year.
However, the market has wobbled in recent days. Both the Dow Jones Industrial Average and the tech-heavy Nasdaq retreated 0.04% on Monday, while the S&P 500 remained unchanged, ending the session at 4,682.80. However, the indices ended the trading session near their record highs.
The low-interest rates and solid corporate earnings should keep supporting the market’s momentum. Therefore, quality stocks, AutoNation, Inc. (AN), Celestica Inc. (CLS), and ARC Document Solutions, Inc. (ARC), which have an A (Strong Buy) rating in our proprietary POWR Ratings system, could be ideal bets now. These stocks look undervalued at their current price levels.
AutoNation, Inc. (AN)
AN is a Fort Lauderdale, Fla.-based automotive retailer in the United States that operates through Domestic; Import, and Premium Luxury segments. Its offerings include a range of automotive products and services, like new and used vehicles, parts, and automotive repair and maintenance.
On October 18, AN announced the opening of AutoNation USA Denver Broadway, the third of five new stores that the company is set to open this year. The company also expects to open 12 additional USA stores in 2022. The new stores should broaden its footprint and drive profitability.
On July 26, AN priced $400 million of senior unsecured notes due 2028 at 1.950%, and $450 of senior unsecured notes due 2031 at 2.400%. The proceeds from the transaction were expected to be used for general corporate purposes and reducing borrowings.
In terms of its forward Price/Sales, AN is currently trading at 0.33x, which is 75.1% lower than the 1.32x industry average. Its 0.49 forward EV/Sales multiple is 67.2% lower than the 1.49 industry average.
For its third fiscal quarter, ended September 30, AN’s total revenue increased 18% year-over-year to $6.38 billion. Its adjusted operating income rose 63.3% from the prior-year quarter to $503.30 million. Its adjusted net income from continuing operations and adjusted EPS from continuing operations came in at $361.70 million and $5.12, respectively, up 70.8% and 115.1% from the same period last year.
The $4.96 consensus EPS estimate for the current quarter (ending December 2021) indicates a 104.1% year-over-year increase. Likewise, the $6.49 billion consensus revenue estimate for the current quarter reflects a 12.3% improvement from the same period last year. Furthermore, AN has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 111.8% in price over the past year and 84.9% year-to-date to close yesterday’s trading session at $129.02.
AN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
AN has a Value grade of A, and a Growth and Quality grade of B. In the 26-stock Auto Dealers & Rentals industry, it is ranked #4. The industry is rated B.
Click here to see the additional POWR Ratings for AN (Momentum, Stability, and Sentiment).
Celestica Inc. (CLS)
CLS, which is based in Toronto, Canada, provides hardware platforms and supply chain solutions on different continents. The company operates through Advanced Technology Solutions and Connectivity & Cloud Solutions segments, offering a range of product manufacturing and supply chain services.
On November 1, CLS completed its acquisition of Asian electronics manufacturing services (EMS) provider, PCI Private Limited (PCI), which is based in Singapore. The acquisition is expected to improve CLS’ capabilities and strengthen its presence in Asia to cater to its growing diverse customer base.
On October 11, CLS partnered with software and technology firm, ECM, to bring to the Aerospace and Defense (A&D) market its patented Printed Circuit Board (PCB) stator solution. Regarding this development, Jack Jacobs, Vice President of Aerospace and Defense at CLS, said, “Our strategic partnership with ECM is a perfect example of how we are helping customers access innovative new technology that reduces product weight, size, sound, and EMI–all key factors when it comes to optimizing military system design.”
CLS’ 0.28 forward EV/Sales multiple is 93.6% lower than 4.31 the industry average. In terms of forward Price/Sales, it is currently trading at 0.26x, which is 94% lower than the 4.28x industry average.
CLS’s non-IFRS adjusted gross profit increased 2.6% year-over-year to $128.50 million in its fiscal third quarter, ended September 30. Its non-IFRS adjusted net earnings, and non-IFRS adjusted EPS improved 6.1% and 9.4%, respectively, from the same period last year to $43.40 million and $0.35. And its non-IFRS free cash flow went up 71.5% from the prior-year quarter to $27.10 million.
Analysts expect CLS’ EPS to improve 23.1% year-over-year to $0.32 in the current quarter (ending December 2021). Likewise, Street expects revenue to increase 7.5% from the prior-year quarter to $1.49 billion. CLS has beaten consensus EPS estimates in each of the trailing four quarters.
CLS’ stock has gained 63.4% in price over the past year to close yesterday’s trading session at $11.55. It has gained 43.1% year-to-date.
It is no surprise that CLS has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has a B grade for Value and Sentiment. It is ranked #2 out of the 74 stocks in the Technology – Services industry.
To see CLS’ additional POWR Ratings for Growth, Momentum, Stability, and Quality, click here.
ARC Document Solutions, Inc. (ARC)
ARC is a reprographics company that provides document solutions to its customers. The Walnut Creek, Calif.-based company’s offerings include managed print services, construction document and information management services, and archive and information management services.
On July 29, ARC declared a $0.02 quarterly dividend per share, payable to shareholders on November 30. The distribution reflects upon the company’s strong cash position.
In terms of its trailing 12 months Price/Cash Flow, ARC is currently trading at 3.02x, which is 81.4% lower than the 16.29x industry average. Its 0.48 trailing 12 months Price/Sales multiple is 71.7% lower than the 1.71 industry average.
For its fiscal third quarter, ended September 30, its adjusted net income attributable to ARC increased 11.2% year-over-year to $3.22 million. Its adjusted EPS improved 14.3% from the prior-year quarter to $0.08. And its cash and cash equivalent balance stood at $54.90 million, up 9.1% from the same period last year.
The stock has gained 124.3% in price over the past year and 106.1% year-to-date to close yesterday’s trading session at $3.05.
ARC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating which equates to Strong Buy in our proprietary rating system. ARC has an A grade for Value and Quality, and a B grade for Momentum and Sentiment. In the 46-stock, B-rated Outsourcing – Business Services industry, it is ranked #4.
In addition to the POWR Rating grades we have stated above, one can see ARC’s ratings for Growth and Stability here.
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AN shares were trading at $130.48 per share on Tuesday afternoon, up $1.46 (+1.13%). Year-to-date, AN has gained 86.96%, versus a 26.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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