With the Fed hiking interest rates by 75 basis points for two consecutive months to tame the 9.1% year-over-year rise in U.S. consumer prices, recessionary concerns are widespread. While the stock market witnessed some recovery last month, the S&P 500 is down 13.6% year-to-date.
On top of it, the U.S. Gross domestic product fell at a 0.9% annualized rate in the second quarter after a 1.6% decline in the year’s first three months. Economists widely take this as a sign of a recession. However, the Fed’s Chair Jerome Powell does not see the country in a recession at present.
Amid the uncertain economic conditions, it could be wise to invest in large-cap stocks. That’s because large-cap stocks typically represent companies that have been around for a while and have the ability to weather challenging economic conditions based on their broader market reach, pricing power, and liquidity.
LyondellBasell Industries N.V. (LYB), Diamondback Energy, Inc. (FANG), and Molina Healthcare, Inc. (MOH) are three such stocks currently trading at a discount. Given their fundamental strength, these stocks could be ideal additions to one’s portfolio to survive the market volatility.
LyondellBasell Industries N.V. (LYB)
LYB operates as a chemical company worldwide. It produces and markets olefins and co-products, polyolefins, and polyethylene products, which consist of polyethylene and polypropylene products. It has a market capitalization of $28.48 billion.
On June 29, it was reported that LYB had signed two U.S. power purchase agreements (PPA). The agreements are expected to enable the company to reduce carbon dioxide emissions by approximately 225,000 metric tons annually, supporting its climate goal.
In May, LYB declared a special dividend of $5.20 per share and a quarterly dividend of $1.19 per share. The special and quarterly dividends were payable to shareholders on June 13. The quarterly dividend represents a 5% increase over the company’s first quarter 2022 dividend.
In terms of its forward non-GAAP P/E, LYB is currently trading at 5.12x, 54.1% lower than the industry average of 11.14x. Its forward non-GAAP PEG multiple of 0.34 is 72.2% lower than the industry average of 1.22.
LYB’s sales and other revenues increased 12.8% from the previous quarter to $14.84 billion in the second quarter ended June 30. Its EBITDA grew 17.9% sequentially to $2.38 billion, while its net income rose 24.5% sequentially to $1.64 billion. The company’s earnings per common share came at $4.98, up 24.5% from the prior quarter.
The consensus EPS estimate of $17.00 for the fiscal year ending December 2022 indicates a 1% improvement year-over-year. The consensus revenue is expected to increase 19.6% from the prior-year period to $55.22 billion for the same period.
The stock has declined marginally over the past month to close its last trading session at $86.95.
LYB’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LYB is rated an A in Value. Within the A–rated Chemicals industry, it is ranked #38 out of 89 stocks. Click here to see additional POWR Ratings for Growth, Momentum, Stability, Sentiment, and Quality for LYB.
Diamondback Energy, Inc. (FANG)
FANG is an independent oil and natural gas company that acquires, develops, and explores unconventional and onshore oil and natural gas reserves in the Permian Basin in West Texas. FANG has a $21.86 billion market capitalization.
In June, FANG announced an enhancement in its capital return program. Beginning from the third quarter of this year, the company intends to increase its return of capital commitment to at least 75% of Free Cash Flow. Additionally, it intends to increase its base dividend to $3.00 per common share annually, beginning with the second quarter of 2022. This reflects on the company’s shareholder return ability.
In May, FANG and Rattler Midstream LP (RTLR) announced that they had entered into a definitive agreement for FANG to acquire all of the publicly held common units representing the limited partner interests in RTLR not already owned by the company and its subsidiaries. This is expected to benefit the companies from the scale of the combined firm.
FANG’s forward EV/EBIT multiple of 4.33 is 50% lower than the industry average of 8.67. In terms of its forward non-GAAP PEG, the stock is trading at 0.38x, 45% lower than the industry average of 0.68x.
FANG’s total revenue increased 64.7% year-over-year to $2.77 billion in the second quarter ended June 30. Its income from operations grew 107.1% from the year-ago value to $1.98 billion, while its net income attributable to FANG improved 355.3% year-over-year to $1.42 billion over the period. The company’s earnings per common share increased 366.5% from its year-ago value to $7.93.
The consensus EPS estimate of $7.04 for the fiscal second quarter (ending September 2022) indicates a 139.3% improvement year-over-year. The consensus revenue estimate of $2.45 billion for the same quarter reflects a 28.3% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each trailing four quarters.
The stock has gained 63.3% over the past year and 16.8% year-to-date to close its last trading session at $125.92.
It is no surprise that FANG has an overall B rating, equating to Buy in our proprietary rating system. The stock has an A grade for Momentum and a B for Quality.
Molina Healthcare, Inc. (MOH)
MOH offers managed health care services to low-income families and individuals under the Medicaid and Medicare programs and through the state insurance marketplaces. It operates through four segments: Medicaid; Medicare; Marketplace; and Other. The company has a market capitalization of $18.88 billion.
On July 13, MOH announced that it had entered into a definitive agreement to acquire all My Choice Wisconsin’s assets substantially. The purchase price for the transaction is approximately $150 million, net of expected tax benefits and required regulatory capital. The transaction is expected to be immediately accretive to MOH’s adjusted earnings per share.
In terms of its forward Price/Sales, MOH is trading at 0.60x, 87.3% lower than the industry average of 4.74x. Its forward EV/Sales multiple of 0.54 is 85.9% lower than the industry average of 3.82.
For the second quarter, ended June 30, 2022, MOH’s total revenues increased 18.4% year-over-year to $8.05 billion. Its operating income grew 32.2% from its year-ago value to $361 million. Adjusted net earnings and adjusted net earnings per share came in at $266 million and $4.55, up 33.7% and 33.8% from the prior-year period.
Street EPS estimate for the fiscal third quarter (ending September 2022) of $4.22 reflects a rise of 49.2% year-over-year. Likewise, Street revenue estimate for the same quarter of $7.84 billion indicates an improvement of 11.4% from the prior-year period. Additionally, MOH has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, MOH’s stock has gained 19% to close its last trading session at $324.95. It has gained 13% over the past six months.
This promising prospect is reflected in MOH’s POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
MOH has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #4 out of 11 stocks in the A-rated Medical – Health Insurance industry. Click here to see the additional POWR Ratings for MOH (Momentum and Stability).
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LYB shares were trading at $86.17 per share on Tuesday afternoon, down $0.78 (-0.90%). Year-to-date, LYB has gained 0.05%, versus a -13.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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