Geopolitical concerns, high inflation, and the Federal Reserve’s aggressive interest rate hikes had kept the stock market under pressure last year, with the major indexes delivering negative returns. With the Fed’s raising interest rates to the highest level since 2008, inflation showed signs of easing in the last three months of the year.
December’s consumer price index (CPI) showed a 6.5% year-over-year rise in prices while it declined 0.1% sequentially. Although inflation is showing signs of cooling, minutes from the Fed’s policy meeting in December showed that the central bank officials expect higher interest rates to remain this year until more progress is made on bringing inflation down to its 2% target.
Therefore, the economy and the stock market are expected to remain under pressure. In this uncertain macroeconomic environment, investors could consider buying fundamentally sound stocks trading at discounts to their peers.
Investors’ interest in undervalued stocks is evident from the Vanguard Value ETF’s (VTV) 12.7% return over the past three months.
Therefore, it could be wise to buy fundamentally strong stocks Overseas Shipholding Group, Inc. (OSG), Mistras Group, Inc. (MG), and Rave Restaurant Group, Inc. (RAVE), which are trading at discounts to their peers.
Overseas Shipholding Group, Inc. (OSG)
OSG owns and operates a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products in the United States flag trade. It serves independent oil traders, refinery operators, and the United States and international government entities.
In terms of its trailing-12-months EV/Sales, OSG’s 1.75x is 11.8% lower than the 1.98x industry average. Its 0.71x trailing-12-months Price/Sales is 48.1% lower than the 1.38x industry average. Likewise, its 0.87x trailing-12-months P/B is 53% lower than the 1.85x industry average.
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.
For the fiscal third quarter ended September 30, 2022, OSG’s shipping revenues increased 31% year-over-year to $123.06 million. The company’s net income came in at $13.25 million, compared to a net loss of $16 million in the year-ago period. Its adjusted EBITDA increased 246.7% year-over-year to $42.30 million.
In addition, its net EPS came in at $0.15, compared to a loss per share of $0.18 in the prior-year quarter. Over the past six months, the stock has gained 67.1% to close the last trading session at $3.56.
OSG’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Shipping industry, it is ranked first out of 46 stocks. The company has an A grade for Momentum and Quality and a B for Growth and Value. Click here to see the other ratings of OSG for Stability and Sentiment.
Mistras Group, Inc. (MG)
MG provides technology-enabled asset protection solutions worldwide. The company operates through three segments: Services, International, and Products and Systems.
It offers non-destructive testing services, predictive maintenance assessments of fixed and rotating assets, and inline inspection for pipelines. It also develops enterprise inspection database management software and plant condition management software.
In terms of forward EV/Sales, MG’s 0.56x is 68.6% lower than the 1.79x industry average. Its 0.22x trailing-12-months Price/Sales is 84.1% lower than the 1.36x industry average.
MG’s total revenue for the fiscal third quarter ended September 30, 2022, increased 2.2% year-over-year to $178.46 million. The company’s non-GAAP net income attributable to MG, excluding special items, increased 40.5% year-over-year to $5 million. Moreover, its non-GAAP EPS came in at $0.16, representing a 33.3% increase from the year-ago period.
Analysts expect MG’s EPS and revenue for fiscal 2022 to increase 28.2% and 1.8% year-over-year to $0.17 and $689.56 million, respectively. The stock has gained 7.2% over the past three months to close the last trading session at $5.04.
MG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It is ranked #6 out of 41 stocks in the B-rated Outsourcing – Business Services industry. It has a B grade for Growth, Value, and Sentiment.
In total, we rate MG on eight different levels. Beyond what we stated above, we have also given MG grades for Momentum, Stability, and Quality. Get all MG ratings here.
Rave Restaurant Group, Inc. (RAVE)
RAVE operates and franchises pizza buffets, delivery/carry-out, and express restaurants under the Pizza Inn trademark worldwide. It operates through three segments: Pizza Inn Franchising, Pie Five Franchising, and Company-Owned Restaurants.
In terms of its trailing-12-months GAAP PEG, RAVE’s 0.01x is 96% lower than the 0.28x industry average. Its 4.12x trailing-12-months GAAP P/E is 71.5% lower than the 14.44x industry average.
For the fiscal first quarter ended September 25, 2022, RAVE’s revenues increased 17.7% year-over-year to $3.01 million. The company’s net income increased 7.7% year-over-year to $307K. Its adjusted EBITDA increased 25.8% year-over-year to $542K. Additionally, its EPS came in at $0.02, representing no change from the prior-year period.
Analysts expect its EPS to increase 10% per annum over the next five years. The stock has gained 76.4% over the past nine months to close the last trading session at $1.87.
RAVE’s POWR ratings reflect this positive outlook. RAVE has an overall rating of A, which translates to a Strong Buy. It is ranked #4 out of 46 in the B-rated Restaurants industry. It has an A grade for Quality and a B for Value and Sentiment.
We have also given RAVE grades for Growth, Momentum, and Stability. Get all RAVE ratings here.
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OSG shares were trading at $3.56 per share on Monday afternoon, up $0.06 (+1.71%). Year-to-date, OSG has gained 23.18%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
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