Encouraged by December’s CPI figures and recent nonfarm payrolls report, investors expect the Fed to raise rates by just 25-basis-points in February versus the 50 or 75-basis-point hikes it delivered previously.
However, the core inflation remains well above the central bank target of 2%. Policymakers have signaled a slowdown in rate hikes but did not promise an easing. According to Bankrate’s Fourth-Quarter Economic Indicator survey, the Fed will likely take rates to a target range of 5.25-5.5%.
UBS Global Wealth Management CIO Mark Haefele believes that investors should brace themselves for stocks’ strong start to the year to be short-lived and tame hopes that inflation is peaking,
Amid macroeconomic uncertainty, a potential buying opportunity might materialize for investors looking to ride on stocks that have gained momentum recently and are well-positioned to maintain the same, irrespective of the market’s movements. Investors’ interest in momentum stocks is evident from the iShares Edge MSCI USA Momentum Factor ETF’s (MTUM) 3.5% returns over the past six months.
Fundamentally strong stocks Overseas Shipholding Group, Inc. (OSG) and Adams Resources & Energy, Inc. (AE), have shown no signs of slowing down. Hence, it could be wise to scoop up the shares of these companies before you kick yourself later for not buying.
Overseas Shipholding Group, Inc. (OSG)
OSG is the owner and operator of a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products in the U.S. flag trade. The company serves independent oil traders, refinery operators, and government entities.
On December 8, 2022, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA for an additional three-year term commencing in December 2023.
“We believe the market continues to support attractive commercial opportunities for these vessel leases to supplement the strong and stable cash flow generation from our niche businesses,” said Sam Norton, OSG’s President, and CEO.
On November 15, 2022, the company’s Board of Directors announced the purchase of $5 million shares of its common stock from Cyrus Capital at a price of $2.86 per share. The price paid in this share purchase equates to an enterprise value of roughly 4.5 times the expected adjusted EBITDA for 2022, an implied valuation considered to be very attractive for OSG.
OSG’s shipping revenues increased 30.9% year-over-year for the third quarter that ended September 30, 2022, to $123.06 million. The company’s net income came in at $13.25 million, compared to a net loss of $16.01 million in the year-ago period. Also, its EPS came in at $0.15, compared to a loss per share of $0.18 in the prior-year period.
In terms of trailing 12-month EV/Sales, OSG is trading at 1.76x, 9.6% lower than the industry average of 1.95x. Its trailing 12-month Price/Sales multiple of 0.73 is 45.1% lower than the industry average of 1.33. In addition, the stock’s trailing 12-month Price/Book ratio of 5.73x compares to the industry average of 4.87x.
Over the past year, the stock has gained 93.7% to close the last trading session at $3.66. OSG is currently trading above its 100-day and 200-day moving averages of $3.01 and $2.63, respectively, indicating an uptrend.
OSG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and Quality and a B for Growth and Value. In the 47-stock A-rated Shipping industry, it is ranked first. Click here to see the additional ratings of OSG for Stability and Sentiment.
Adams Resources & Energy, Inc. (AE)
AE is engaged in the marketing, transportation, terminalling, and storing of various crude oil and natural gas basins in the United States. The company operates through three segments: Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Storage of Crude Oil.
On November 1, 2022, the company announced a repurchase of all its shares owned by KSA Industries, Inc., its largest stockholder. With this transaction, AE made significant returns to its existing shareholders and increased the intrinsic value of their stake in the company.
On September 1, AE announced that its subsidiary, Service Transport Company, had opened its 20th terminal in Pittsburgh, PA. This new facility is expected to bring additional opportunities for revenue and profitability growth while serving as a base of operations for recruitment in the immediate area.
AE’s total revenues increased 50.1% year-over-year to $852.90 million for the third quarter that ended September 30, 2022. Its operating earnings grew 30.2% from its prior-year quarter to $2.99 million, while its adjusted net earnings grew 168.6% from its year-ago value to $4.71 million. The company’s adjusted EPS improved by 158.5% from its year-ago value to $1.06.
In terms of forward EV/Sales, AE is trading at 0.02x, 98.9% lower than the industry average of 1.83x. Its forward EV/EBITDA multiple of 1.97 is 62.9% lower than the industry average of 5.33. In addition, its forward Price/Sales ratio of 0.03 is 97.5% lower than the industry average of 1.37.
The consensus EPS estimate of $3.37 for fiscal 2022 (ended on December 31, 2022) represents a 22.6% improvement year-over-year. The revenue estimate for the same period is expected to amount to $3.46 billion. The stock has gained 63.4% over the past year to close the last trading session at $50.05.
Also, it is currently trading above its 100-day and 200-day moving averages of $35.41 and $34.86, respectively, indicating an uptrend.
AE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and Sentiment and a B for Value and Quality.
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OSG shares were trading at $3.69 per share on Friday morning, up $0.03 (+0.82%). Year-to-date, OSG has gained 27.68%, versus a 2.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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