COVID-19 cases have this month resurfaced in the United States, with the Delta variant spreading nationwide. As the number of daily cases spikes in several other countries too, the stock market could witness panic selling on investors’ concerns that the resurgence of COVID-19 could mar the economic recovery. All three major benchmark indices corrected to a degree last week. And the CBOE Volatility Index surged as high as 25 last week, its highest level since May.
Since the jitters around the rising COVID-19 cases could lead to several overpriced stocks suffering declines in the near term, it could be an opportune time to bet on quality stocks that are trading at reasonable valuations. This year, value stocks have performed quite well, as evidenced by the SPDR Portfolio S&P 500 Value ETF’s (SPYV) 15.1% returns year-to-date.
So, we think it could be wise to bet now on fundamentally sound stocks Honda Motor Co. Ltd (HMC), Hill-Rom Holdings Inc. (HRC), Foot Locker, Inc. (FL), and Boise Cascade Company (BCC). They are currently trading at discounts to their peers.
Honda Motor Co. Ltd (HMC)
Headquartered in Tokyo, Japan, HMC is a leading manufacturer and seller of motorcycles, automobiles, power goods, jet aircraft, and other items worldwide. The company operates through motorcycles, automobiles, financial services, life creation, and other business segments.
In May, HMC acquired Honda Kaihatsu as a wholly owned subsidiary through a share exchange. HMC aims to improve the Honda Group Companies’ corporate activities through this acquisition by strengthening and leveraging Honda Kaihatsu’s business expertise.
For its fiscal year ended March 31, 2021, HMC’s operating income rose 4.2% from its year-ago value to ¥660.2 billion ($101.90 billion). Its net income increased 44.3% year-over-year to ¥657.4 billion ($101.47 billion), while its EPS grew 120.62% from the prior-year quarter to ¥380.75 ($58.76).
A $3.85 consensus EPS estimate for the fiscal period ending in March 2023 represents a 28.9% increase year-over-year. The $138.53 billion consensus revenue estimate for the current year represents a 389.8% increase from the same period last year. The stock has gained 22.4% over the past year and 27.7% over the past nine months.
In terms of forward EV/EBITDA, HMC is currently trading at 9.16x, 18% lower than the 11.17x industry average. The stock’s 0.38x forward Price/Sales is 70.1% lower than 1.28x the industry average.
HMC’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
HMC also has an A rating for Value, and a B for Growth and Stability. Within the Auto-Vehicle Manufacturers industry, it is ranked #2 of 57 stocks. Click here to see more of HMC’s component grades (Sentiment, Quality, and Momentum).
Note that HMC is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Hill-Rom Holdings Inc. (HRC)
HRC in Batesville, Ind., is a global medical technology company. HRC operates mainly through three segments: Patient Support System; Front Line Care; and Surgical Solutions. It offers a wide range of products and services, such as medical-surgical beds, critical care unit beds, patient mobility solutions, information technology and software solutions, and other services.
This month, HRC unveiled its Helion Integrated Surgical System in the United States. The Helion System gives operating room teams the connection, flexibility, and efficient staff communication they need to improve patient outcomes. Through this launch, the company has exhibited its commitment to advancing its connected-care capabilities.
HRC’s net revenue increased 5.4% year-over-year to $762 million in the second quarter, ended March 31, 2021. Its operating profit grew 31% from its year-ago value to $114.3 million. The company’s net income increased 85.7% year-over-year to $87.1 million. In addition, its EPS increased 85.7% year-over-year to $87.1 million over this period.
The company’s EPS is expected to grow 9.6% year-over-year to $6.06 in its fiscal year 2021. Analysts expect HRC’s revenue to increase 2% year-over-year to $2.94 billion in the current year. The stock has gained 5.7% over the past month and 21.1% year-to-date.
In terms of forward Price/Sales, HRC is currently trading at 2.67x, which is 65.3% lower than the 7.68x industry average. Also, the stock’s 19.46x forward P/E is 16.7% lower than the 23.35x industry average.
HRC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. HRC also has an A grade for Value, and a B for Stability and Sentiment. In addition, the stock is ranked #10 of 186 stocks in the Medical – Devices & Equipment industry.
Beyond the POWR Ratings grades we have just highlighted, one can see the HRC ratings for Growth, Momentum, and Quality.
Foot Locker, Inc. (FL)
FL is a New York City-based athletic footwear and clothing store operator. The company sells athletic footwear, apparel, accessories, equipment, and team-branded products through its stores, e-commerce sites, and mobile apps. Its popular brands include Lady Foot Locker, Kids Foot Locker, Runners Point, and Sidestep.
In May, FL announced its new basketball-inspired capsule collection designed by the new creative director of its women’s business, Melody Ehsani. The new collection should help the company engage more with customers that are passionate about fashion and basketball culture and boost its brand value.
During the first quarter, ended May 1, 2021, FL’s sales increased 83.1% year-over-year to $2.15 billion. The company reported $282 million in operating income, versus a $105 million operating loss in the prior-year quarter. Its net income came in at $202 million for this period, compared to a $110 million net loss in the first quarter of 2020. The company’s EPS totaled $1.93, versus a $1.06 loss per share in the prior-year period.
The company’s EPS is expected to grow 101.8% year-over-year to $5.67 in the current year. Analysts expect FL’s revenue to increase 13.5% from the year-ago value to $8.57 billion in its fiscal year 2022. FL’s stock has gained 94.2% over the past year. Also, the stock has surged 45.1% year-to-date.
In terms of forward P/E, FL is currently trading at 10.05x, which is 37.6% lower than the 16.11x industry average. The stock’s 0.69x forward Price/Sales is 46.2% lower than the 1.28x industry average.
FL’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. FL is also rated an A for Value, Growth, and Momentum. Within the A-rated Athletics and Recreation industry, it is ranked #2 of 34 stocks. Click here to see additional POWR Ratings for Stability, Quality, and Sentiment for FL.
Note that FL is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Boise Cascade Company (BCC)
BCC is a full-service wood product manufacturer and building materials distributor with facilities across the United States and Canada. Wood Products; Building Materials Distribution; and Corporate and Other are the three segments through which the Boise, Idaho, company operates. New residential construction, home repair and renovation projects, light commercial construction, and industrial applications are where the company’s products are most widely utilized. This month, BCC unveiled its new website for its millwork business. The website will feature exterior and interior doors and finish options, door hardware, and other related goods. This will enable the company to provide its consumers with easy access to a wide range of product literature, videos, technical and warranty information and enhance its brand image.
During the first quarter, ended March 31, 2021, BCC’s sales increased 55.6% year-over-year to $1.82 billion. Its income from operations increased 703.5% year-over-year to $205.26 million, while its net income surged significantly from the prior-year quarter to $149.16 million. Its adjusted EBITDA grew 277.3% from the prior-year quarter to $224.94 million.
The company’s EPS is expected to grow 165.3% year-over-year to $11.78 in the current year. In addition, analysts expect BCC’s revenue to increase 26.1% year-over-year to $6.91 billion in its fiscal year 2021. BCC’s stock has gained 12.8% over the past year and 26.7% over the past nine months.
In terms of forward EV/Sales, BCC is currently trading at 0.29x, which is 84.9% lower than the 1.89x industry average. In addition, the stock’s 4.18x forward P/E is 80% lower than the 20.94x industry average.
It is no surprise that BCC has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Growth and Value, and a B for Momentum and Quality. Within the A-rated Industrial – Wood industry, it is ranked #2 of 6 stocks.
In addition to the POWR Ratings grades we have just highlighted one can see the BCC rating for Stability and Sentiment here.
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HMC shares were trading at $31.45 per share on Thursday morning, down $0.22 (-0.69%). Year-to-date, HMC has gained 12.78%, versus a 17.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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