As inflation continues to ease, the Federal Reserve shrunk its interest rate hike again this Wednesday. The Fed raised rates by 25 basis points (bps) at the first Federal Open Market Committee (FOMC) meeting of 2023, down from the previous hike of 50 bps. This shows that while the Fed remains hawkish in its efforts to battle inflation, it is still willing to offer the market some relief this year.

Fed Chair Jerome Powell is assertive that the central bank can get inflation down to 2% “without a really significant downturn, or a really significant increase in unemployment.” He also said, “My base case is that there will be positive growth this year.”

A more dovish-than-expected comment from the Fed’s chair feeds Wall Street’s hopes of slowing interest rate increases and a soft landing of the economy.

The International Monetary Fund (IMF) has also revised its global growth forecast for the year due to better-than-expected domestic factors in nations such as the United States and Europe. The IMF now expects the global economy to grow 2.9% this year, a 0.2% increase from its prior projection in October. Also, the IMF’s 2023 economic growth outlook for the U.S. improved to 1.4%, compared to the October forecast of 1%.

Given an improving economic outlook, investors should buy quality stocks Celestica Inc. (CLS) and Universal Logistics Holdings, Inc. (ULH), which possess solid growth attributes.

Celestica Inc. (CLS)

Headquartered in Toronto, Canada, CLS provides hardware platform and supply chain solutions. The company’s segments include Advanced Technology Solutions; and Connectivity & Cloud Solutions.

The company offers a range of infrastructure products for enterprise-level data communications and information processing, along with related supply chain services and product manufacturing services.

On December 8, 2022, CLS declared that the Toronto Stock Exchange (TSX) had approved the company’s notice to launch a Normal Course Issuer Bid. Under the Bid, CLS repurchased on the open market in December and completed a purchase of up to 8 million subordinate voting shares. The company considers the purchases to be in its best interests and wise use of its funds.

Furthermore, on October 18, CLS launched the DS1000 high-performance Gigabit Ethernet Layer 3 switch. It utilizes OCP’s ONIE, a powerful interface to the platform hardware, and is both robust and compact, making it flexible for the data center and the Edge. This latest addition to CLS’ Hardware Platform Technologies (HPS) portfolio might strategically benefit the company.

In terms of forward non-GAAP P/E, CLS is currently trading at 6.77x, 68.7% lower than the industry average of 21.63x. The stock’s forward EV/Sales of 0.27x is 91.3% lower than the industry average of 3.15x. Also, its forward EV/EBITDA of 4.18 compares with the 14.11x industry average.

For the fiscal fourth quarter that ended December 31, 2022, CLS’ revenue grew 35.1% year-over-year to $2.04 billion. Its adjusted gross profit rose 31.6% from the prior year’s quarter to $191.80 million. Moreover, the company’s adjusted EBIAT increased 45.1% from the year-ago value to $107.80 million.

Furthermore, CLS’ adjusted net earnings stood at $68.40 million, a 23.9% increase year-over-year, while its adjusted EPS stood at $0.56, up 27.3% from the prior year’s period.

CLS’ revenue has grown 7.2% over the past three years, while its EBITDA grew 21% over the same period. Moreover, the company’s EBIT and net income have risen 39.5% and 27.4% over the past three years, respectively.

Analysts expect CLS’ revenue to increase 4.9% year-over-year to $7.60 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to rise 6.5% from the previous year to $2.02. Moreover, CLS surpassed its consensus EPS in all four trailing quarters, which is impressive.

Shares of CLS have gained 20.3% over the past month and 30.4% over the past six months to close the last trading session at $13.70. It is currently trading above its 50-day and 200-day moving averages of $11.68 and $10.63, respectively, indicating an uptrend.

CLS’ POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has an A grade for Growth, Momentum, and Value and a B for Sentiment. Within the Technology – Services industry, it has topped among 78 stocks.

To see additional POWR Ratings for Quality and Stability for CLS, click here.

Universal Logistics Holdings, Inc. (ULH)

ULH offers logistics and transportation services. It provides final mile and ground expediting services, domestic and international freight forwarding, customs brokerage, and truckload services. The business offers its services to steel, oil and gas, alternative energy, manufacturing, automotive, and other industries. 

In terms of forward non-GAAP P/E, ULH is currently trading at 5.94x, 67.2% lower than the industry average of 18.09x. The stock’s forward EV/Sales of 0.73x is 60% lower than the industry average of 1.82x. Also, its forward EV/EBITDA of 4.59 compares with the 11.49x industry average.

For the third quarter that ended October 1, 2022, ULH’s total operating revenues increased 13.5% year-over-year to $505.69 million, and its income from operations grew 317.4% from the year-ago value to $69.78 million. Moreover, the company’s income before income taxes stood at $64.83 million, a rise of 376.6% year-over-year.

Also, ULH’s net income rose 371.9% year-over-year to $48.48 million, while its EPS came in at $1.84, up 384.2% year-over-year.

The company’s revenue grew 10% over the past three years, and its EBITDA increased 18.7% over the same period. Also, ULH’s EBIT and net income rose 29% and 58.7% over the past three years, respectively.

The consensus revenue estimate of $2.02 billion for the fiscal year (ended December 2022) reflects a growth of 15.4% from the previous year. Likewise, the consensus EPS estimate of $6.40 for the same year indicates a 90.3% year-over-year improvement.

The stock has gained 13.7% over the past month and 111.4% over the past year to close the last trading session at $38.01. ULH is currently trading above its 50-day and 200-day moving averages of $35.50 and $31.76, respectively, indicating an uptrend.

ULH’s strong prospects are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

ULH has an A grade for Growth and a B for Value and Stability. It has topped within the A-rated 16-stock Air Freight & Shipping Services industry.

Beyond what we stated above, we also have ULH’s ratings for Quality, Sentiment, and Momentum. Get all ULH ratings here.

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CLS shares were trading at $13.66 per share on Friday afternoon, down $0.04 (-0.29%). Year-to-date, CLS has gained 21.21%, versus a 7.86% 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. More...

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