High inflation and a tight jobs market are expected to keep the Federal Reserve busy as it looks to keep raising interest rates higher than previously projected. Amid this uncertain macroeconomic environment, it could be wise to cash in on the fundamental strength of General Motors Company (GM) and Acuity Brands, Inc. (AYI) stocks, making them smart investments for investors.

Before evaluating these stocks, let’s discuss what might keep the market under pressure in the near term.

OECD Secretary-General Mathias Cormann believes that the global economic outlook is “slightly brighter” for 2023, but inflationary pressures remain a challenge.

Following a 0.6% sequential and 5.4% year-over-year rise in the Personal Consumption Expenditure (PCE), along with the hotter-than-expected jobs report from January, the Federal Reserve is tasked with getting inflation under control while juggling the risk of a deep economic recession.

Minutes from the Fed’s policy meeting earlier this month show that the officials believe that interest rates need to move higher and stay elevated to achieve the 2% inflation target. The market expects the Fed to raise the peak funds rate beyond 5% this year.

The macroeconomic uncertainty could cause further volatility in the stock market in the upcoming months. Let’s find out why fundamentally strong stocks GM and AYI could be smart buys for investors amid the expected volatility.

General Motors Company (GM)

GM designs, builds, and sells trucks, crossovers, cars, and automobile parts and accessories worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.

In terms of forward non-GAAP P/E, GM’s 6.34x is 56% lower than the 14.42x industry average. Its 0.92x forward EV/Sales is 22% lower than the 1.17x industry average. Likewise, its 6.91x forward EV/EBITDA is 29.1% lower than the 9.73x industry average.  

On February 9, 2023, GM and GlobalFoundries Inc. (GFS) announced a strategic, long-term agreement to establish a dedicated capacity corridor exclusively for GM’s chip supply. This agreement should help GM reduce the number of unique chips required to power its complex, tech-heavy vehicles.

For the fiscal fourth quarter that ended December 31, 2022, GM’s revenue increased 28.4% year-over-year to $43.11 billion. Its net income attributable to stockholders increased 14.8% year-over-year to $2 billion. In addition, its adjusted EPS came in at $2.12, representing a 57% increase from the year-ago quarter.

GM’s revenue for the quarter ending March 31, 2023, is expected to increase 9.1% year-over-year to $39.24 billion. Its EPS for the quarter ending June 30, 2023, is expected to increase 41.4% year-over-year to $1.61.

The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 11.3% to close the last trading session at $39.18.

GM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #19 out of 61 stocks in the Auto & Vehicle Manufacturers industry. It has a B grade for Growth, Value, and Sentiment.  

Click here to see the additional POWR Ratings of GM for Momentum, Stability, and Quality.

Acuity Brands, Inc. (AYI) 

AYI provides lighting and building management solutions worldwide. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG).

In terms of forward non-GAAP P/E, AYI’s 13.87x is 19.6% lower than the 17.24x industry average. Its 9.82x forward EV/EBITDA is 10.8% lower than the 11x industry average. Likewise, its 10.68x forward EV/EBIT is 29.3% lower than the 15.11x industry average.  

For the fiscal first quarter that ended November 30, 2022, AYI’s net sales increased 7.8% year-over-year to $997.90 billion. Its non-GAAP net income increased 6.1% year-over-year to $107.50 million.

The company’s non-GAAP operating profit increased 5.3% year-over-year to $140.10 million. Moreover, its adjusted EBITDA increased 4.1% year-over-year to $153 million, while its non-GAAP EPS came in at $3.29, representing a 15.4% increase from the prior-year quarter. 

Analysts expect AYI’s EPS and revenue for the quarter ending February 28, 2023, to increase 6.1% and 5.5% year-over-year to $2.73 and $958.98 million, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 16.1% over the past nine months to close the last trading session at $191.03.  

AYI’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. Within the Home Improvement & Goods industry, it is ranked first out of 59 stocks. It has an A grade for Quality and a B for Value. 

We have also given AYI grades for Growth, Momentum, Stability, and Sentiment. Get all AYI ratings here.  

Consider This Before Placing Your Next Trade…

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GM shares were trading at $39.38 per share on Monday afternoon, up $0.20 (+0.51%). Year-to-date, GM has gained 17.06%, versus a 4.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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