After a miserable 2020, this year has certainly proved to be a ray of hope for the global economy. Normalcy is gradually returning with aggressive rollouts of COVID-19 vaccines. However, amid rising fears of inflation and uncertainty surrounding its potential to prompt the Federal Reserve to tighten its monetary policy, the odds of investment success from betting on stocks have been reduced slightly.
However, even in the face of the potential impact of economic and geopolitical issues on the stock markets in the near term, we wouldn’t hesitate to bet on ArcelorMittal (MT) and Canon Inc. (CAJ) because they appear to have opportunities ahead to deliver healthy returns.
These two companies’ business growth has driven solid momentum in their stock prices. Furthermore, they possess rock-solid financials and fundamentals, while trading at relatively lower valuations. Also, analyst sentiment is favorable for these stocks.
Headquartered in Luxembourg City, Luxembourg, MT operates steel manufacturing and mining facilities in Europe, the United States, Asia, and Africa. The company sells its finished flat products, which comprise plates, hot- and cold-rolled coils and sheets, coking and thermal coal, and finished long products to the engineering, construction, energy, automotive and machinery industries.
This month, the company completed its first XCarb innovation fund investment since its launch in March 2021. MT invested an initial $10 million in renewable energy company Heliogen as a part of a broader partnership. The two companies have also signed a memorandum of understanding to enhance MT’s decarbonization initiatives and deploy breakthrough technologies.
In April, MT announced the amendment of its $5.5 billion revolving credit facility to align with its target of reducing its carbon intensity and meeting sustainability goals. The company plans to reach carbon neutrality by 2050 and reduce CO2 emission by 30% for its European operations by 2030.
MT’s sales increased 9.1% year-over-year to $16.19 billion in the first quarter, ended March 31, 2021. Its operating income rose 32.2% sequentially to $2.64 billion, while its EBITDA rose 87.8% sequentially to $3.24 billion. It reported net income of $2.29 billion, representing an 89.3% increase sequentially. Also, the company’s EPS came in at $1.94 for this quarter, compared to a $1.11 loss per share in the prior-year period.
The company’s 4.20 forward non-GAAP P/E ratio is 73.8% lower than the 16.02 industry average. Also, its 0.64 forward EV/Sales ratio is 66% lower than the 1.88x industry average.
MT’s levered free cash flow has grown at a 93.2% CAGR over the past three years. Its tangible book value has risen at an 0.9% annualized rate over the same period. A $3 consensus EPS estimate for the current quarter, ending June 2021 represents a 1,100% improvement year-over-year. Also, an $18.26 billion consensus revenue estimate for the current quarter indicates a 71.5% increase year-over-year. The stock has gained 201.7% over the past year and 54.3% over the past six months.
MT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, 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.
The stock also has an A grade for Growth, and a B grade for Value and Momentum. We have also graded MT for Quality, Stability and Sentiment. Click here to view all of MT’s ratings.
MT is ranked #7 of 34 stocks in the A-rated Steel industry.
Canon Inc. (CAJ)
Based in Tokyo, Japan, CAJ is a leading optical, imaging, multifunction devices and lithography equipment manufacturer and seller. It operates through its Office Business Unit, Imaging System Business Unit, Medical System Business Unit, and Industry and Others Business Unit segments. It sells interchangeable-lens digital cameras, digital compact cameras, and interchangeable lenses and image scanners under the Canon brand name.
This month, the company introduced two new quality control Automation Modules for the imagePRESS C10010VP Series of digital color presses–a Sensing Unit and Inspection Unit and a new optional Cooling Unit to produce high-quality and accurate color printed output. This development will allow CAJ to deliver modules that enhance productivity and thus better serve its users.
On June 2, CAJ announced forthcoming firmware updates for its renowned imaging products to boost workflow, improve functionality and provide customization updates. The company’s firmware for its EOS C300 Mark III and EOS C500 Mark II cameras is expected to be available beginning July 30.
In the first quarter, ended March 31, 2021, CAJ’s net sales increased 7.7% year-over-year to ¥842.7 billion ($7.65 billion). The company’s gross profit rose 7.2% from its year-ago value to ¥384.4 billion ($3.49 billion). Its net income came in at ¥44.5 billion ($0.4 billion), representing a 102.9% increase from the prior-year quarter. CAJ’s cash flow from operating activities was ¥129.2 billion ($1.17 billion) due to an increase in profit and working capital improvement.
The stock is currently undervalued. CAJ’s 0.85 forward EV/Sales ratio is 80.5% lower than the 4.37 x industry average. Its 0.78x forward Price/Sales multiple is 81% lower than the 4.09 industry average.
CAJ’s tangible book value has grown at a 0.3% CAGR over the past three years. Analysts expect CAJ’s revenue for the quarter ending September 2021 to be $8.01 billion, representing 17.3% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters. Its EPS is likely to increase 525% for the current quarter ending June 2021. Also, CAJ’s stock surged 22% year-to-date and 9% over the past three months.
CAJ’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to Strong Buy in our POWR Ratings system. It has a B grade for Momentum, Growth and Sentiment also. In addition to the POWR Ratings grades we’ve just highlighted, one can see CAJ’s ratings for Stability, Value, and Quality here.
Of the 46 stocks in the B-rated Technology – Hardware industry, CAJ is ranked #2.
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MT shares were trading at $31.21 per share on Tuesday morning, down $1.46 (-4.47%). Year-to-date, MT has gained 37.37%, versus a 13.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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