Despite being hit hard by the coronavirus pandemic, the U.S. stock markets delivered solid returns last year. But the clear disconnect between the economy and the stock market has raised concerns about a stock market bubble. In fact, many companies are currently trading at sky-high valuations absent adequate fundamental strength.
As the market has grown wary of speculative investments, value stocks have gained momentum over the past few months. This is evident in the iShares Russell 1000 Value ETF’s (IWD) 15% gains over this period versus iShares Russell 1000 Growth ETF’s (IWF) 5.6% returns.
The Kraft Heinz Company (KHC) and Ally Financial Inc. (ALLY), which operate in the food and financial services industries, respectively, have been able to survive pandemic-induced disruptions with resilience and strong corporate management. These stocks are currently trading at discounts to their peers and are well-positioned we believe to gain with the economic recovery.
The Kraft Heinz Company (KHC)
KHC is a leading food and beverage company with a diverse portfolio of iconic and emerging brands. The company manufactures and markets food and beverage products worldwide.
KHC’s trailing-12-month non-GAAP P/E of 11.43x is 43.1% lower than the industry average of 20.08x. In terms of trailing-12-month Price/Cash Flow, the stock is currently trading at 8.01x, 36.9% lower than the industry average of 12.68x.
HEINZ, a KHC brand, launched a touchless automatic dispenser in October to restore consumer confidence in dining on premise. The device uses a motion sensor technology and offers a complete touchless serving experience designed to eliminate shared touch points. This innovative technology is expected to be leveraged by restaurants and sports stadiums, amusement parks and movie theaters to attract customers.
KHC’s net sales have increased 6% year-over-year to $6.44 billion in the third quarter ended September 26, 2020. Its adjusted EBITDA has risen 13.5% from the year-ago value to $1.37 billion. Its free cash flow has improved 107.9% year-over-year to $2.93 billion for the nine=month period ended September 26, 2020.
Analysts expect KHC’s revenues to grow 3.6% year-over-year to $6.77 billion in the fourth quarter ended December 31, 2020. The consensus EPS estimate of $0.73 for the about-to-be-reported quarter indicates a slight improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 14.6% over the past nine months.
How does KHC stack up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
B for Industry Rank
B for Overall POWR Rating
The stock is ranked #20 of 88 stocks in the Food Makers Industry.
Ally Financial Inc. (ALLY)
ALLY is a digital financial services company primarily serving consumers, commercial, and corporate customers. The company operates through Automotive Finance Operations, Insurance Operations, Mortgage Finance Operations, and Corporate Finance Operations segments. In addition, it offers securities-brokerage and investment-advisory services through Ally Invest.
ALLY’s trailing-12-month Price/Sales of 2.63x is 19.2% lower than the industry average of 3.25x. In terms of trailing-12-month Price/Cash Flow, the stock is currently trading at 4.20x, 56.5% lower than the industry average of 9.66x.
ALLY, through its subsidiary Ally Lending, expanded its relationship with Milan Laser Hair Removal in October by providing the company with patient financing options at all of its locations. This will help Ally Lending to build upon its strong legacy in the consumer healthcare lending market.
ALLY’s net financing revenue has increased slightly year-over-year to $1.20 billion in the fiscal third quarter ended September 26, 2020. Its adjusted EPS has risen 104.9% from the year-ago value to $1.25 over the same period.
Analysts expect ALLY’s revenues to grow 1.7% year-over-year to $1.67 billion in the fourth quarter ended December 31, 2020. The consensus EPS estimate of $1.04 for the about-to-be-reported quarter indicates a 9.5% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 151.2% over the past nine months.
ALLY’s POWR Ratings reflect this promising outlook. It is rated “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade, Industry Rank, Peer Grade and Buy & Hold Grade. Among 47 stocks in the Consumer Financial Services Industry, it is ranked #8.
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KHC shares rose $0.05 (+0.16%) in after-hours trading Thursday. Year-to-date, KHC has declined -7.44%, versus a 1.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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