President Biden selected Jerome Powell to lead the Federal Reserve for a second term. The announcement on Monday morning drove the benchmark indices higher. Stocks have also received a boost from solid third-quarter corporate earnings, with collective S&P 500 corporate profits improving 42.3% year-over-year to $ $452.9 billion.
The economic recovery has regained its momentum, as is evident in the reduction in jobless claims to near pre-pandemic levels. Jobless benefits declined to a 20-month low in early November.
However, the tech-heavy Nasdaq Composite declined on Tuesday, as a rise in Treasury yields prompted investors to buy stocks. Hence, with the low-interest-rate environment continuing, we think it could be wise to invest in fundamentally sound stocks ArcelorMittal (MT), Silicon Motion Technology Corporation (SIMO), and Genesco Inc. (GCO). Each name looks undervalued at its current price levels.
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 November 17, MT announced the closing of its fourth share buyback program and declared the commencement of the new $1 billion buyback program. The shares acquired under the program are expected to meet MT’s debt obligations and reduce its share capital.
On November 3, at a COP26 event, the company and the government of Quebec announced that ArcelorMittal Mining Canada would invest CAD205 million ($161.31 million) in its Port Cartier pellet plant to convert the facility into a direct reduced iron (DRI) pellet plant by the end of 2025. The Quebec government will contribute with electricity rebates. The initiative should enable MT to strengthen its footprint in the DRI pellets market.
In terms of its forward non-GAAP P/E, MT is currently trading at 2.27x, which is 85.2% lower than the 15.30 industry average. Its 1.98 forward EV/EBIT multiple is 84.6% lower than the 12.87 industry average.
MT’s sales increased 52.5% year-over-year to $20.23 billion in its third fiscal quarter, ended September 30. Its net income attributable to equity holders of the parent and earnings per common share came in at $4.62 billion and $4.16, respectively, both up substantially from their negative year-ago values. Its EBITDA rose 572.4% from the prior-year quarter to $6.06 billion.
The Street’s $3.80 EPS estimate for the current quarter (ending December 2021) reflects a 1,900% year-over-year improvement. Similarly, the Street’s $20.70 billion revenue estimate for the current quarter indicates a 45.9% increase from the same period last year. Furthermore, MT has an impressive earnings surprise history; it has topped consensus EPS estimates in three of the trailing four quarters.
The stock has gained 78.5% in price over the past year to close yesterday’s trading session at $30.49. It has gained 33.1% year-to-date.
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 distinct factors, with each factor weighted to an optimal degree.
MT has an A grade for Value and Momentum, and a B grade for Growth, Sentiment, and Quality. In the 34-stock Steel industry, it is ranked #4. The industry is rated A.
To see the additional POWR Rating for Stability for MT, click here.
Note that MT is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Silicon Motion Technology Corporation (SIMO)
Based in Kowloon, Hong Kong, SIMO designs and sells NAND flash controllers for solid-state storage devices. Its offerings include SSDs (solid-state drives) for PCs and other devices and UFS mobile embedded smartphone storage. The company also provides SSDs for data centers, industrial, commercial, and automotive.
On October 25, SIMO declared an annual dividend of $2.00 per ADS, representing a 43% increase from its previous dividend of $1.40 per ADS. The dividend is to be paid to shareholders in quarterly installments of $0.50 per ADS beginning November 24. The move reflects the company’s rise in revenues and cash flow generation.
In August, SIMO launched its new single-chip high performance, lower power, and cost-effective solution for external portable SSDs. Regarding the product launch, Stanley Huang, Senior Director of SSD Storage Marketing at SIMO, said, “The best external portable SSDs are not just delivering faster performance, but also offering lower power, smaller size and lower cost. By eliminating the bridge chip design, our new portable SSD controller solutions provide a simpler, more cost-effective solution for this growing product segment.”
SIMO’s 8.17 forward EV/EBIT multiple is 60.1% lower than the 20.49 industry average. And in terms of its forward non-GAAP P/E, the stock is currently trading at 11.70x, which is 53.3% lower than the 25.04x industry average.
For its fiscal third quarter, ended September 30, SIMO’s net sales increased 101.7% year-over-year to $254.24 million. Its non-GAAP gross profit rose 106.5% from the prior-year quarter to $127.76 million. And its non-GAAP net income and non-GAAP earnings per ADS came in at $60.40 million and $1.70, respectively, up 126.4% and 123.7% from the same period last year.
A $1.74 consensus EPS estimate for the current quarter (ending December 2021) indicates a 102.3% year-over-year increase. Similarly, the $260.83 million consensus revenue estimate for the current quarter reflects an 81.3% improvement from the prior-year quarter. Furthermore, SIMO has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 83.3% in price over the past year and 46.2% year-to-date, to close yesterday’s trading session at $70.37. It is currently trading above its 50-day and 200-day Moving Average of $70.34 and $67.11, respectively.
It is no surprise that SIMO has an overall A rating, which translates to Strong Buy, in our POWR Rating system. The stock has a Growth and Value grade of A, and a Momentum and Quality grade of B. It is ranked #4 of 102 stocks in the Semiconductor & Wireless Chip industry. The industry is rated A.
Click here to see the additional POWR Ratings for SIMO (Stability and Sentiment).
Genesco Inc. (GCO)
GCO is a Nashville, Tenn.-based footwear, apparel, and accessories retailer that operates through the four segments–Journeys Group; Schuh Group; Johnston & Murphy Group; and Licensed Brands. Its retail stores are in the United States, Puerto Rico, Canada, and the United Kingdom.
In terms of its forward EV/Sales, GCO is currently trading at 0.62x, which is 57.6% lower than the 1.46 industry average. Its forward 0.45 Price/Sales multiple is 64.4% lower than the 1.27 industry average.
GCO’s net sales increased 41.9% year-over-year to $555.18 million in its second fiscal quarter, ended July 31. Its gross margin improved 63.2% from the same period last year to $272.52 million. And its adjusted earnings from continuing operations and per-share amount stood at $15.32 million and $1.05, respectively, registering a substantial increase over their negative year-ago values.
Analysts expect GCO’s EPS to increase 593.2% year-over-year to $5.82 in its current year (fiscal 2022). Similarly, the Street expects its revenue to improve 33.5% from the prior year to $2.39 billion in the current year. In addition, GCO has beaten consensus EPS estimates in each of the trailing four quarters.
GCO’s stock has gained 106.8% in price over the past year to close yesterday’s trading session at $69.79. It has gained 131.9% year-to-date. It is currently trading above its $63.02 50-day Moving Average and its 200-day Moving Average of $56.36.
This promising outlook is reflected in GCO’s POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. GCO has an A grade for Growth, Value, Momentum, and Quality. It is ranked #1 of 63 stocks in the Fashion & Luxury industry. The industry is rated A.
In addition to the POWR Rating grades we have stated above, one can see GCO ratings for Stability and Sentiment here.
Note that GCO is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
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MT shares fell $0.64 (-2.10%) in premarket trading Wednesday. Year-to-date, MT has gained 34.20%, versus a 26.45% 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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