The stock market is on an incredible run. The major indices are currently hovering around their all-time highs. Consequently, the valuations of high-growth stocks are being stretched to the max and apprehensive investors are now looking for potential turnaround candidates that possess quality fundamentals and are positioned to benefit from a vaccine-driven economic rebound this year.
This is evident from the iShares Russell 1000 Value ETF’s (IWD) 16% gains over the past three months versus iShares Russell 1000 Growth ETF’s (IWF) 11.5% returns. A global economic recovery should allow value stocks to show their full potential.
Rising consumer spending and mass vaccination drives are paving the way for a V-shaped recovery. This, coupled with rising investor optimism, should drive the performances of 3M Company (MMM), Zoetis Inc. (ZTS) and Norbord Inc. (OSB), which are currently trading at discounts to their peers.
3M Company (MMM)
MMM is a technology company operating through four segments: Safety and Industrial, Transportation and Electronics, Health Care, and Consumer. The company markets its products through various e-commerce and traditional wholesalers, retailers, distributors, and dealers, and directly to users.
MMM’s trailing-12-month P/E of 18.99x is 35.4% lower than the industry average of 29.39x. In terms of forward-12-month P/E, the stock is currently trading at 18.24x, 27.2% lower than the industry average of 25.04x.
In December, 3M Littmann Stethoscopes partnered with eMurmur to release two new educational apps designed to support healthcare/medical students and professionals. The app is designed to help users better recognize pathological heart sounds and murmurs.
In late November, MMM joined hands with Safran Cabin to facilitate cleaner aircraft cabins for passenger safety and confidence. During the same period, the company also partnered with Rad AI to leverage artificial intelligence technology for radiology reporting.
MMM’s net sales have increased 5.3% year-over-year to $8.58 billion in the fourth quarter ended December 31, 2020. Its non-GAAP operating income has risen 20.1% from the year-ago value to $1.85 billion, while its EPS has improved 43.4% from the same period last year to $2.38.
Analysts expect MMM’s revenues to grow 4.5% year-over-year to $8.44 billion in the current quarter ending March 31, 2021. A consensus EPS estimate of $2.30 for the current quarter represents a 6.5% 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 8.4% over the past year.
MMM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. MMM has a Quality Grade of A and Stability Grade of B. In the 89-stock Industrial – Machinery Industry, which has an A rating, it is ranked #34.
In total, we rate MMM on eight different levels. Beyond what we stated above, we have also grated MMM for Growth, Value, Momentum, and Sentiment. Get all MMM’s ratings here.
Zoetis Inc. (ZTS)
ZTS is a leading animal health company engaged in discovering, developing, and commercializing medicines, vaccines and diagnostic products that are complemented by bio devices, genetic tests and precision livestock farming. The company serves veterinarians, livestock producers, and people who raise farm and companion animals.
In terms of trailing-12-month p/e, ZTS is currently trading at 44.45x, 10.4% lower than the Abbott Labs’ (ABT) valuation of 49.63x.
During the fourth quarter, ZTS launched the Vetscan Imagyst, which is a diagnostic platform that can help detect intestinal parasites in pets. The company also received regulatory approval for its various products in different parts of the world. These include Simparica, Cytopoint and Revolution Plus tablets and two well-known swine vaccines – Fostera Gold PCV MH and Fostera Gold PCV.
ZTS’ revenue has increased 12.8% year-over-year to $1.79 billion in the third quarter ended September 30, 2020. Its non-GAAP gross profit has risen 11.9% from the year-ago value to $1.24 billion, while its adjusted EPS has improved 17% from the same period last year to $1.10.
Analysts expect ZTS’ revenues to grow 5.2% year-to-year to $6.59 billion in the fiscal 2020 ended December 31. A consensus EPS estimate of $3.80 for ZTS’ fiscal 2020 indicates a 4.4% improvement year-to-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 11.4% over the past year.
It is no surprise that ZTS has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. ZTS has a grade of B for Stability, Quality and Momentum.
Click here to see the additional POWR Ratings for ZTS (Growth, Value, Sentiment, and Industry).
Norbord Inc. (OSB)
OSB is a Canada-based company engaged in the manufacturing and commercializing of panel boards and related products used primarily in the housing industry. Its panel-board related products include oriented strand boards, particleboards, and medium density fiberboards. The Company’s products are primarily sold to retail chains, contractor supply yards and industrial users.
OSB’s trailing-12-month p/e of 15.32x is 43% lower than the industry average of 26.87x. In terms of forward-12-month price/cash flow, the stock is currently trading at 4.47x, 52.9% lower than the industry average of 9.49x.
In January, shareholders of West Fraser and Norbord approved all resolutions relating to West Fraser’s acquisition of all the issued and outstanding common shares of Norbord. The acquisition will allow OSB shareholders to benefit from a stronger value creation platform.
OSB’s sales have increased 66.7% year-over-year to $725 million in the fiscal third quarter ended October 3, 2020. The increase in revenue is attributable primarily to higher lumber prices and shipment volumes across North America and Europe. Its adjusted EBITDA has risen 875.8% from the same period last year to $322 million, while its adjusted EPS has improved 1295.2% from a negative year-ago value to $2.72.
Analysts expect OSB’s revenues to grow 19.1% year-over-year to $556.14 million in the current quarter ending March 31, 2021. A consensus EPS estimate of $1.06 for the current quarter represents an 82.8% 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 45.6% over the past year.
OSB’s POWR Ratings reflect a promising outlook. The stock has an overall rating of B, which equates to Buy in our rating system. OSB has a grade of A for Growth and Quality. It is currently ranked #11 of 52 stocks in the A-rated Industrial – Building Materials Industry.
Click here to see the additional POWR Ratings for OSB (Value, Momentum, Stability, and Sentiment).
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MMM shares were unchanged in after-hours trading Monday. Year-to-date, MMM has declined -0.05%, versus a 0.63% 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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