With the Fed’s third consecutive 75-bps interest rate hike triggering a broad market sell-off, indices have hit new lows, confirming that we are deep within the bear market territory. With the central bank officials now predicting the key rate to end this year at a range of 4.25% to 4.5%, up from the previously projected range of 3.25% to 3.5%, it seems unlikely that markets will return to stability anytime soon.

Furthermore, Florida State University economist Jerry Parish said that the economy is headed into a recession in the next nine months. He doubts that the Fed can control inflation without causing a recession. However, these market uncertainties also present an opportunity for bargain hunters to load up on stocks of robust businesses at attractive prices.

Hence, we think fundamentally strong stocks The Kroger Co. (KR) and APA Corporation (APA), currently trading under $50, could be ideal investments.

The Kroger Co. (KR) 

KR operates as a food retailing company that serves consumers throughout the United States through supermarkets, multi-department stores, fulfillment centers, and online channels.

On September 16, 2022, KR announced the official opening of a new spoke in Birmingham, Alabama.  The spoke is expected to operate as a seamless extension of the regional fulfillment center in Atlanta, making Kroger Delivery available to more customers in the greater Birmingham area. The expansion should drive up the company’s revenue while increasing its market penetration.

On September 15, KR declared a quarterly dividend of 26 cents per share, payable to shareholders on December 1. Its annual dividend of $1.04 translates to a 2.31% yield at the current prices, compared to a 4-year average dividend yield of 1.96%. The current payout ratio is 22.03%, and the company has increased its dividends for the past 15 years.

For the second quarter of fiscal 2022 ended August 13, 2022, KR’s sales increased 9.3% year-over-year to $34.64 billion, while its operating profit increased 13.7% year-over-year to $954 million. During the same period, the company’s adjusted EBITDA grew 10.9% from the year-ago value to $7.63 billion, while its adjusted EPS improved 12.5% year-over-year to $0.90. 

Analysts expect KR’s revenue and EPS for the fiscal year 2023 to increase 7.7% and 10.1% year-over-year to $148.49 billion and $4.05, respectively. Both metrics are expected to keep rising over the next two fiscal years. Moreover, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.

KR’s stock has gained 11.9% over the past year to close the last trading session at $45.

The stock has an overall rating of A, translating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

KR has grade B for Quality, Growth, and Value. It is ranked #4 of 38 stocks in the A-rated Grocery/Big Box Retailers industry. 

Click here to see the additional POWR Ratings for KR (Momentum, Stability, and Sentiment).

APA Corporation (APA)

As an independent energy company, APA explores, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). The company operates in the United States, Egypt, and the offshore United Kingdom in the North Sea, Suriname, and other international locations.

On September 14, 2022, APA announced an increase in annual dividend from $0.50 per common share to $1.00 per common share, yielding 3.14% at the current price, compared to a 4-year average dividend yield of 2.9%. The next quarterly dividend of $0.25 will be paid out on November 22, 2022.

On August 23, APA announced an oil discovery offshore Suriname at Baja-1 in Block 53, drilled to a depth of 5,290 meters, and encountered 34 meters of net oil pay in a single interval within the Campanian. The company is currently progressing through the formalization of the election of the first one-year extension, for which all work commitments are complete.

For the second quarter of fiscal 2022, ended June 30, APA’s total revenues came in at $3.05 billion, up 71.3% year-over-year. During the same period, APA’s net income attributable to common stock increased 193% year-over-year to $926 million, while its net income per share increased 230.5% year-over-year to $2.71.

Analysts expect APA’s revenue to increase 22.4% year-over-year to $2.57 billion in the third quarter, ending September 2022. The company’s EPS is estimated to increase 136.7% year-over-year to $2.32 in the same period.

The stock has gained 13.5% year-to-date to close the last trading session at $31.84.

APA’s excellent prospects have earned it an overall POWR Rating of A, which translates to a Strong Buy in our proprietary rating system. The stock also has A grades for Momentum and Quality and B for Growth and Value.

APA is ranked #6 of 94 stocks in the B-rated Energy – Oil & Gas industry. Click here to learn the additional POWR Ratings for Stability and Sentiment for APA.

KR shares were trading at $44.29 per share on Tuesday afternoon, down $0.71 (-1.58%). Year-to-date, KR has declined -0.77%, versus a -22.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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