Lawmakers are facing a deadline of fewer than three weeks to raise the debt limit. The failure may lead to a default, with a subsequent broad market sell-off and economic downturn. When the country was on the brink of such an outcome is 2011, the S&P 500 declined more than 18%. In addition, companies are raising prices or are intending to do so soon, as input prices are rising due to continued supply chain bottlenecks.
Historically, value stocks have performed better than growth stocks in the face of market volatility and increasing prices. The SPDR Portfolio S&P 500 Value ETF (SPYV) has gained 31.2% over the past year, outperforming the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 29.2% returns.
Thus, it could be wise to invest in fundamentally strong stocks Hitachi, Ltd. (HTHIY), Honda Motor Co., Ltd. (HMC), Penske Automotive Group, Inc. (PAG), and Konica Minolta, Inc. (KNCAY) that look undervalued at their current price levels.
Hitachi, Ltd. (HTHIY)
HTHIY is a multinational corporation headquartered in Tokyo, Japan. The company provides technology and smart-life solutions globally, with a portfolio of software, IoT, ATM, and storage systems services.
On September 28, HTHIY and its recently acquired subsidiary GlobalLogic, a digital engineering services firm, launched a collaborative hub to promote digital transformation services in the Lumada Innovation Hub in Tokyo. Given the rising demand for digital transformation, this launch is expected to create a new revenue stream for HTHIY.
On September 21, the Egyptian Electricity Transmission Company (EETC) appointed Hitachi ABB Power Grids to provide energy management systems for establishing a regional control center in Northern Egypt. The collaboration demonstrates HTHIY’s expanding international operations.
In terms of GAAP forward P/E, HTHIY is currently trading at 8.55x, 60.8% lower than the industry average of 21.82x. Its forward EV/Sales multiple of 0.89 is 53.2% lower than the industry average of 1.89.
For the three months ended June 30, HTHIY’s revenue increased 48.5% year-over-year to $21.33 billion. The company’s gross profit went up 39% from the prior year’s quarter to $5.20 billion. Adjusted operating income stood at $1.18 billion, up 123.5% from the same period last year.
The consensus EPS estimate of $14.45 for the current year (fiscal 2022) indicates a 47.4% year-over-year increase. Likewise, the consensus revenue estimate of $90 billion for the ongoing year reflects a rise of 9.3% from the prior year. The stock has gained 74.2% over the past year and 53.1% year-to-date to close yesterday’s trading session at $121.52.
HTHIY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
HTHIY has an A grade for Value, and a B grade for Growth, Stability, and Sentiment. In the 92-stock Industrial – Equipment industry, it is ranked #4. This industry is rated B. Click here to see the additional POWR Ratings for HTHIY (Momentum and Quality).
Honda Motor Co., Ltd. (HMC)
HMC is a producer, manufacturer, and distributor of motorcycles, automobiles, power products, and aircraft and jet engines. It also sells spare parts and provides after-sale services. The company is headquartered in Tokyo, Japan.
On September 24, HMC collaborated with Alphabet Inc. (GOOGL) for using GOOGL’s in-connected vehicle services in HMC’s new automobile model with the expectation of enhancing user experience. The collaboration might create new value channels for HMC by leveraging GOOGL’s expertise in innovative technologies.
On September 21, HMC launched its new second-generation Honda BR-V model, enabled with a set of new features, for customers in Indonesia. About this launch, Masayuki Igarashi, Chief Officer for Regional Operations (Asia & Oceania), HMC, said, “Indonesia is one of Honda’s most important markets in Asia and Oceania for both production and sales. Therefore, we continue to develop new models and services to meet the demand from customers around the world, including Indonesia. The All-New Honda BR-V was developed to define a new generation of style, comfort, and performance for enjoy of driving for Indonesian customers.”
HMC’s forward Price/Sales multiple of 0.39 is 69.2% lower than the industry average of 1.26. In terms of forward Price/Cash Flow, HMC is currently trading at 3.66x, 72.1% lower than the industry average of 13.13x.
In the fiscal first quarter ended June 30, HMC’s revenue was up 68.7% year-over-year to ¥3.58 trillion ($32.18 billion). The company’s profit for the period stood at ¥237.72 billion ($2.13 billion) while EPS attributable to owners of the parent came in at ¥128.87, both up substantially from their negative year-ago values.
Street EPS estimate for the ongoing year (fiscal 2022) of $3.87 reflects an 11.3% year-over-year increase, while Street revenue estimate of $139.06 billion for the current year indicates a 391.6% year-over-year rise. Moreover, HMC has an impressive revenue surprise history as it topped consensus revenue estimates in each of the trailing four quarters. HMC’s stock has gained 31.9% over the past year and 10.4% year-to-date to close yesterday’s trading session at $31.20.
It’s no surprise that HMC has an overall rating of B, which translates to Buy in our proprietary POWR Rating system. The stock also has a Value grade of A and a Stability and Sentiment grade of B. It is ranked #2 out of the 63 stocks in the Auto & Vehicle Manufacturers industry.
To see the additional POWR Ratings for Growth, Momentum, and Quality, click here.
Penske Automotive Group, Inc. (PAG)
PAG is a transportation services company that operates practically through four segments – Retail Automotive; Retail Commercial Truck; Other; and Non-Automotive Investments. The company sells new and used vehicles and also operates truck dealerships.
On June 4, PAG announced its expansion to Charlotte, North Carolina, following its acquisition of the Mercedes-Benz dealership of South Charlotte. PAG expects to add $700 million to its annual revenue from this acquisition.
In July, PAG, in collaboration with Cox Automotive, Inc., developed a fully online retail platform for used vehicles. The platform is expected to benefit PAG by seamless and easy transactions, enhancing customer experience.
In terms of forward EV/Sales, PAG is currently trading at 0.58x, 60.4% lower than the industry average of 1.46x. Its forward price/Sales multiple of 0.33 is 73.7% lower than the industry average of 1.26.
In the second fiscal quarter ended June 30, PAG’s revenue increased 91.4% year-over-year to $6.99 billion. Its gross profit rose 113.9% from the prior year’s quarter to $1.18 billion. Adjusted income from continuing operations increased 700.4% year-over-year to $360.20 million, while adjusted EPS from continuing operations came in at $4.47, indicating a 698.2% rise from the same period last year.
Street EPS estimate of $2.89 for the next quarter (ending December 2021) reflects a 16.1% year-over-year increase. Likewise, the consensus revenue estimate of $6.58 billion for the upcoming quarter indicates a 13.2% increase from the prior-year quarters. Moreover, PAG has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, PAG has gained 117.6% to close yesterday’s trading session at $104.83. The stock has gained 76.5% year-to-date.
PAG’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A which equates to Strong Buy in our proprietary rating system.
PAG has a Value grade of A and a Growth, Momentum, and Sentiment grade of B. It is ranked #3 out of the 25 stocks in the Auto Dealers & Rentals industry. This industry is rated B. To see additional POWR Ratings for Stability and Quality for PAG, click here.
Konica Minolta, Inc. (KNCAY)
KNCAY is a multinational technology company based in Tokyo, Japan. The company sells multi-functional devices, digital printing systems, and other allied consumables. In addition, the company provides IT and printing solutions and services.
In terms of forward EV/Sales, KNCAY is currently trading at 0.64x, 84.2% lower than the industry average of 4.04x. Its forward price/Sales multiple of 0.31 is 92.4% lower than the industry average of 4.09.
For the three months ended June 30, KNCAY’s revenue increased 32.7% year-over-year to ¥229.86 billion ($2.06 billion). Gross profit improved 41.3% from the prior-year quarter to ¥101.29 billion ($909.56 million). Profit attributable to owners of the company and EPS came in at ¥978 million ($8.78 million) and ¥1.98 respectively, up substantially from their negative year-ago values.
Analysts expect its revenue to increase 5.9% year-over-year in the current quarter (ending September 2021) to $2.14 billion. In addition, KNCAY beat consensus revenue estimates in three out of the trailing four quarters, which is impressive. KNCAY’s stock has gained 91.7% over the last year and 8.5% over the past month.
KNCAY has an overall rating of B, which translates to Buy in our rating system. The stock has an A grade for Value, and a B grade for Growth, Stability, and Quality. KNCAY is ranked #16 in the Industrial – Equipment industry.
In addition to the POWR Rating grades we’ve stated above, one can view KNCAY ratings for Momentum and Sentiment here.
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HTHIY shares were trading at $118.96 per share on Thursday morning, down $2.56 (-2.11%). Year-to-date, HTHIY has gained 51.08%, versus a 17.60% 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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