After a solid rally earlier this year, value stocks have lagged behind the growth stocks over the past few months. The major stock market indexes got a boost from strong corporate earnings results. However, the market has remained volatile due to the resurgence of COVID-19 cases worldwide.
Uncertainty regarding the timing of the Federal Reserve’s tapering activities and high inflation concerns have also contributed to the market volatility. With most stocks trading at lofty valuations, it isn’t easy to find true value stocks right now. But some quality stocks are still trading at reasonable valuations. Moreover, according to a CNBC survey, nearly 70% of the respondents said that value stocks would do better than their growth counterparts in the upcoming months.
Dow Inc. (DOW), POSCO (PKX), AutoNation, Inc. (AN), and Penske Automotive Group, Inc. (PAG) are four quality stocks that hold immense growth potential. Their shares are currently trading at lower valuations compared to their peers. In addition, our proprietary POWR Ratings system has rated these stocks Strong Buy. So, it could be wise to bet on them now.
Dow Inc. (DOW)
DOW provides various materials science solutions for consumer care, infrastructure, and packaging markets. It operates through three segments: Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials and Coatings. In addition, it is engaged in property and casualty insurance and reinsurance business.
On July 28, Siemens Aktiengesellschaft (SIEGY) and DOW collaborated to showcase the future of automation with a process industry testbed at MxD. DOW’s Global Digitalization Director, Billy Bardin, said, “Providing this hands-on experience will be critical for digital transformation in the process industries, showing how the digital twin and the connected mobile worker can enable greater productivity, reliability, and safety.”
DOW’s net sales increased 22% year-over-year to $11.90 billion for the quarter that ended March 31, 2021. Its income before income taxes increased 234.1% year-over-year to $1.32 billion, and its net income grew 314.6% year-over-year to $991 million. In addition, the company’s EPS increased 312.5% year-over-year to $1.32.
In terms of forward non-GAAP PEG, DOW’s 0.20x is 85.32% lower than the industry average of 1.35x. In terms of forward EV/EBIT ratio, the stock’s 6.71x is 43.5% lower than the industry average of 11.88x.
Analysts expect DOW’s EPS to come in at $6.99 in fiscal 2021, representing a 321.1% year-over-year increase. It surpassed Street EPS estimates in each of the trailing four quarters. In addition, the company’s revenue is expected to increase 31.9% year-over-year to $12.55 billion for the quarter ending September 30, 2021. The stock has gained 45.3% over the past year to close yesterday’s trading session at $61.
DOW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, which equates to Strong Buy rating in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has a B grade for Growth and Value.
Headquartered in Pohang, South Korea, PKX manufactures and sells steel rolled products and plates internationally. It operates through four segments: Steel; Construction; Trading; and Others. The company’s offerings include hot and cold rolled steel, stainless steel, plates, wire rods, and silicon steel sheets.
On March 31, 2021, the company announced that it would supply 26,000 tons of steel plates to construct commercial facilities built by Shinsegae Eng. & Construction Co., Ltd. This is expected to increase PKX’s revenue.
PKX’s revenue climbed 11.9% year-over-year to 16.07 billion KRW ($14.21 million) for the fiscal first quarter that ended March 31, 2021. Its operating income grew 13.9% year-over-year to 1.55 billion KRW ($1.37 million). The company’s net income increased 161.8% year-over-year to 1.14 billion KRW ($1 million).
In terms of forward EV/EBITDA, PKX’s 3.15x is 59.9% lower than the industry average of 7.85x. In terms of forward P/S ratio, the stock’s 0.71x is 49.4% lower than the industry average of 1.41x.
The company’s EPS is expected to increase 240.4% year-over-year to $11.13 in fiscal 2021. Its revenue is expected to increase 100.2% year-over-year to $62.73 billion in fiscal 2022. The stock has gained 82.1% over the past year to close yesterday’s trading session at $75.35.
PKX’s POWR Ratings reflect this promising outlook. The company has an overall grade of A, which translates to a Strong Buy rating in our proprietary ratings system.
The stock has an A grade for Growth, Momentum, and Value, and a B grade for Sentiment and Stability. Within the A-rated Steel industry, PKX is ranked #5 of 35 stocks. To see PKX’s rating for Quality, click here.
Click here to check out our Infrastructure Sector Report for 2021
AutoNation, Inc. (AN)
Automotive retailer AN operates through three segments: Domestic; Import; and Premium Luxury. It offers a range of automotive products and services, including new and used vehicles, parts, and services such as automotive repair and maintenance and wholesale parts and collision services.
AN announced the opening of AutoNation USA San Antonio in May 2021, the first of five additional stores that the company will open this year. The AutoNation USA stores will continue to leverage the AutoNation brand, scale, and proven Customer-centric processes to capture a larger share of the used vehicle market.
AN’s revenue increased 54% year-over-year to $6.98 billion for the second quarter that ended June 30, 2021. Its adjusted operating income increased 156% year-over-year to $530.20 million, and its adjusted net income grew 211% year-over-year to $384.90 million. The company’s adjusted EPS increased 243% year-over-year to $4.83.
In terms of forward EV/S, AN’s 0.47x is 68.9% lower than the industry average of 1.52x. Likewise, the stock’s 0.33x forward P/S is 74% lower than the industry average of 1.27x.
Analysts expect AN’s EPS and revenue to increase 41.6% and 16.7% year-over-year to $10.08 and $23.8 billion, respectively, in fiscal 2021. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has surged 122.4% over the past year to close yesterday’s trading session at $118.54.
It’s no surprise that AN has an overall grade of A, which equates to a Strong Buy rating in our POWR Ratings system. In addition, the stock has an A grade for Value, and a B grade for Growth and Quality.
Penske Automotive Group, Inc. (PAG)
PAG is a diversified transportation service company that operates automotive and commercial truck dealerships. The company operates through four segments: Retail Automotive; Retail Commercial Truck; Other; and Non-Automotive Investments. It operates dealerships under franchise agreements with various automotive manufacturers and distributors.
On July 21, 2021, PAG announced that its Board of Directors had increased its dividend by 2.3% to $0.45 per share. PAG’s President, Robert H. Kurnick, said, “Our business achieved record results for the six months ending June 30, 2021, and our cash flow remains strong. With this increase, the annualized dividend increases to $1.80 per share, representing a yield to our shareholders of more than 2% annually.”
PAG’s revenue increased 91.4% year-over-year to $7 billion for the second quarter that ended June 30, 2021. Its adjusted income from continuing operations increased 700.4% year-over-year to $360.20 million. Its adjusted EBITDA grew 351.6% year-over-year to $530.6 million. Also, the company’s adjusted EPS increased 698.2% year-over-year to $4.47.
In terms of forward EV/S, PAG’s 0.51x is 66.3% lower than the industry average of 1.52x. In terms of forward P/S ratio, the stock’s 0.27x is 78.7% lower than the industry average of 1.27x.
For fiscal 2021, analysts expect PAG’s EPS to come in at $8.79, representing a 30.4% year-over-year increase. It surpassed Street EPS estimates in each of the trailing four quarters. In addition, the company’s revenue is expected to increase 20.8% year-over-year to $6.64 billion for the quarter ending September 30, 2021. The stock has gained 89.4% over the past year to close yesterday’s trading session at $87.73.
PAG’s POWR Ratings reflect this promising outlook. The stock has an overall grade of A, which equals a Strong Buy rating in the POWR Ratings system. It also has an A grade for Value, and a B for Sentiment. To see more of PAG’s component grades, click here.
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DOW shares were trading at $62.14 per share on Friday afternoon, up $1.14 (+1.87%). Year-to-date, DOW has gained 14.36%, versus a 19.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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