The rise in inflation is compelling the Federal Reserve to act more aggressively this year. Goldman Sachs Group Inc. (GS) economist David Mericle stated that the omicron variant-induced price increases could push the Fed to raise rates faster. Inflation is currently running at its highest 12-month pace in nearly 40 years.
Amid the high inflation over the past year, growth stocks have underperformed value stocks. The SPDR Portfolio S&P 500 Value ETF’s (SPYV) 16% gains over the past year compare with the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 9.75% returns. This suggests a positive correlation between inflation and the performance of value stocks.
That’s why today we’re highlighting 4 stocks from our Top 10 Value screen, which is just 1 of the 10 outperforming screens in our POWR Screens 10 service (more on that below). ArcelorMittal (MT), Covestro AG (COVTY), KT Corporation (KT), and Nature’s Sunshine Products, Inc. (NATR), which are currently trading at discounts to their peers, could be solid additions to one’s portfolio. These stocks have an overall rating of Strong Buy and a Value grade of A in our proprietary rating system.
MT owns and operates steel manufacturing and mining facilities in Europe, North and South America, Asia, and Africa. It sells its products to customers in the automotive, appliance, construction, and machinery industries. It is headquartered in Luxembourg City, Luxembourg.
On December 22, MT announced the final repurchase price for repurchases of certain of its 5.50% Mandatorily Convertible Subordinated Notes due 2023. Earlier in December, the company had declared that it had entered into privately negotiated agreements to repurchase approximately $395 million in an aggregate amount, equivalent to about 36.6 million of its common stock, marking a further step forward in MT’s capital return program.
On December 9, MT announced that the company had made a $30 million investment in the carbon-recycling company LanzaTech, through its XCarb™ innovation fund, aligning to the company’s sustainability initiatives.
In terms of its forward non-GAAP P/E, MT is currently trading at 2.40x, 84.3% lower than the industry average of 15.27x. Its forward EV/EBIT multiple of 2.09 is 83.4% lower than the industry average of 12.57.
MT’s sales increased 52.5% year-over-year to $20.23 billion in the third fiscal quarter ended September 30. Net income attributable to equity holders of the parent and earnings per common share came in at $4.62 billion and $4.16, both up substantially from their negative year-ago values. EBITDA rose 572.4% from the prior-year quarter to $6.06 billion.
Street EPS estimate for the fourth quarter (ended December 2021) of $3.30 reflects a 1,636.8% year-over-year improvement. Likewise, Street revenue estimate of $20.53 billion for the same quarter indicates an increase of 44.7% from the same period last year. Moreover, MT has an impressive earnings surprise history as it has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 41.9% over the past year to close Friday’s trading session at $31.83.
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.
MT has an A grade for Value and a B grade for Growth, Momentum, Sentiment, and Quality. In the 35-stock Steel industry, it is ranked #4. The industry is rated A. To see the additional POWR Rating for Stability for MT, click here.
Covestro AG (COVTY)
COVTY is a developer, producer, and marketer of polymer materials for various industries. The company, headquartered in Leverkusen, Germany, operates through three segments: Polyurethanes; Polycarbonates; and Coatings, Adhesives, and Specialties (CAS).
On January 17, Australia-based green energy company Fortescue Future Industries (FFI) and COVTY announced their plan to enter into a long-term agreement to supply green hydrogen and its derivative, which includes green ammonia. The collaboration is expected to play a crucial role in enabling energy-intensive companies to reach their emission control targets.
On December 13, COVTY announced that it had started supplying climate-neutral polycarbonate from its Uerdingen site in Germany. These climate-neutral Makrolon® polycarbonate grades should add to the company’s revenue stream.
COVTY’s forward non-GAAP P/E multiple of 6.18 is 59.6% below the industry average of 15.27. In terms of its forward non-GAAP PEG, the stock is currently trading at 0.18x, 85.1% below the industry average of 1.23x.
For the fiscal third quarter, COVTY’s sales increased 55.9% year-over-year to €4.30 billion ($4.88 billion). Gross profit rose 75.8% from the prior-year quarter to €1.24 billion ($1.40 billion). EBIT and EPS came in at €654 million ($741.80 million) and €2.44, up 146.8% and 149% from the prior-year quarter.
Analysts expect COVTY’s revenue to improve 30.1% year-over-year to $4.75 billion in the fiscal fourth quarter (ended December 2021).
COVTY’s shares have declined 1.2% intraday to close Friday’s trading session at $29.79.
It’s no surprise that COVTY has an overall A rating, which translates to Strong Buy in our POWR Rating system. COVTY has a Value grade of A and a Quality grade of B. It is ranked #2 out of the 90 stocks in the Chemicals industry. The industry is rated A.
In addition to the POWR Rating grades we’ve stated above, one can see COVTY ratings for Growth, Momentum, Stability, and Sentiment here.
KT Corporation (KT)
KT is a telecom service provider based in Seongnam, South Korea. The company’s offerings comprise fixed-line telephone services, broadband internet services, other data communication services, and media and content services.
On January 5, KT unveiled XWAVE, its new maritime brand. With enhanced features, KT is expected to capture 40% of the growing global maritime data communication demand from the Bay of Bengal, Indonesia, and the West Sea of Australia to the Indian Ocean.
On December 16, KT SAT, KT’s satellite providing subsidiary, announced that it suggested an alliance for LEO business to regional satellite operators. The company expects to occupy sufficient satellite capacity and enhance competitiveness in the business through this alliance.
In terms of its forward EV/EBITDA, KT is currently trading at 2.57x, 72% lower than the industry average of 9.19x. Its forward Price/Sales multiple of 0.40 is 76.6% lower than the industry average of 1.72.
In the third quarter of fiscal 2021, KT’s operating revenue increased 3.6% year-over-year to KRW6.22 trillion ($5.21 billion). Operating income increased 30.1% from the prior-year quarter to KRW382.40 billion ($320.37 million). The company’s net income came in at KRW337.70 billion ($282.92 million), up 46.9% from the same period last year.
The consensus revenue estimate of $5.25 billion for the quarter ending March 2022 indicates a rise of 28.5% year-over-year.
The stock has gained 22% over the past year and 0.5% intraday to close Friday’s trading session at $13.14.
This positive outlook is reflected in KT’s POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
KT has a Value grade of A and a Growth, Stability, and Sentiment grade of B. In the 48-stock Telecom – Foreign industry, it is ranked #4. The industry is rated A. Click here to see the additional POWR Ratings for KT (Momentum and Quality).
Nature’s Sunshine Products, Inc. (NATR)
NATR operates as a natural health and wellness company primarily manufactures and markets nutritional and personal care products internationally. The company’s offerings include general health products, immunity, cardiovascular and digestive products, and personal care products.
On January 18, NATR announced the launch of AIVIA, a new line of nutrition products for supporting physical activity, providing energy, and helping weight management. The brand-new product line might substantially add to the company’s revenue.
NATR’s forward EV/Sales multiple of 0.72 is 62.7% below the industry average of 1.93. In terms of its forward EV/EBITDA, NATR is currently trading at 6.94x, 43.9% below the industry average of 12.37x.
NATR’s net sales increased 14.5% year-over-year to $114.75 million in the fiscal third quarter ended September 30. Gross profit improved 16.8% from the year-ago quarter to $85.33 million, while adjusted EBITDA rose 38% from the prior-year quarter to $12.94 million.
The consensus EPS estimate of $1.19 for fiscal 2022 indicates a 45.1% year-over-year improvement. Similarly, the consensus revenue estimate for the same year of $467.10 million reflects a rise of 7.3% from the prior year.
Over the past year, NATR’s stock has gained 13.3% to close Friday’s trading session at $18.29. It has gained 13.8% over the past three months.
NATR has an overall rating of A, which translates to Strong Buy in our POWR Rating system. The stock has an A grade for Value, Sentiment, and Quality and a B grade for Stability. It is ranked #1 out of the nine stocks in the Medical – Consumer Goods industry. The industry is rated A. Click here to see the additional POWR Ratings for NATR (Growth and Momentum).
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
MT shares fell $0.15 (-0.49%) in after-hours trading Tuesday. Year-to-date, MT has declined -4.02%, versus a -8.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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