Increasing concerns regarding the spread of the omicron coronavirus variant and its impact on the supply chain, along with rising inflation, have led to the markets experiencing increased volatility this week. However, Biden’s announcement about the imminent authorization of at-home COVID-19 rapid tests enabled major benchmark indexes to recover from the lows. Given the current macroeconomic backdrop posing a threat to economic recovery, investors and analysts anticipate a significant market correction early next year.

Value stocks are gaining investor attention lately, owing to their ability to hedge the market volatility to a certain extent. Investor optimism in this space is evident from the Vanguard Value ETF’s (VTV) 1.2% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) negative returns.

Thus, it could be wise to bet on fundamentally-sound undervalued stocks Penske Automotive Group, Inc. (PAG), AutoNation, Inc. (AN), KT Corporation (KT), Mazda Motor Corporation (MZDAY), and Hillenbrand, Inc. (HI) now. These mid-cap stocks possess significant upside potential.

Penske Automotive Group, Inc. (PAG)

PAG is a diversified transportation services company that operates automotive and commercial truck dealerships internationally. The company sells new and used motor vehicles and related products, vehicle and collision repair services, finance and lease contracts, third-party insurance products, and other aftermarket products. It has a market capitalization of $7.81 billion.

On December 14, 2021, PAG acquired Erhard BMW of Bloomfield, the largest BMW dealership in Michigan. This dealership has a strong legacy of serving BMW enthusiasts in the metropolitan Detroit market for over 50 years. PAG expects this acquisition to generate approximately $100 million in annualized revenue.

On November 16, PAG acquired McCoy Freightliner, a retailer of medium- and heavy-duty commercial trucks in Oregon. This acquisition will add its two full-service dealerships and a remarketing center to PAG’s Premier Truck Group (PTG) subsidiary’s existing operations and expand its reach to the Pacific Northwest. PAG expects the move to generate approximately $200 million in annualized revenue.

For its fiscal third quarter, ended September 30, 2021, PAG’s revenue increased 8.8% year-over-year to $6.50 billion. The company’s gross profit came in at $1.17 billion for the quarter, up 21.9% from the prior-year period. Its adjusted income from operations increased 52.7% year-over-year to $354.80 million. While its net income increased 44% year-over-year to $356.30 million, its adjusted EPS increased 53.8% to $4.46. As of September 30, 2021, the company had $119.20 million in cash and cash equivalents. 

Analysts expect the stock’s EPS to increase 120.5% year-over-year to $14.86 in the current year. The consensus revenue estimate of $25.54 billion for the current year represents a 24.9% rise from the prior-year period. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. PAG’s EPS is expected to grow at a rate of 20% per annum over the next five years.

The stock has gained 64.7% year-to-date and closed yesterday’s trading session at $100.47. PAG’s 0.54x forward EV/Sales is 61.7% lower than the 1.40x industry average. In terms of forward Price/Sales, PAG is currently trading at 0.30x, 73.2% lower than the industry average of 1.12x.

PAG’s POWR Ratings reflect this promising outlook. 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.

The stock has an A grade for Value and a B grade for Sentiment and Quality. Click here to see the additional ratings for PAG’s Growth, Momentum, and Stability.

PAG is ranked #3 of 26 stocks in the B-rated Auto Dealers & Rentals industry.

AutoNation, Inc. (AN)

Having a $7.27 billion market cap, AN operates as an automotive retailer that offers a range of new and used vehicles, wholesale parts, repair, maintenance, and collision services. The company also provides automotive finance and insurance products that comprise vehicle services and other protection products and arranges finance for vehicle purchases through third-party finance sources. As of December 31, 2020, AN owned and operated 315 new vehicle franchises.

On November 16, 2021, AN opened AutoNation USA’s second pre-owned vehicle store in the Phoenix market. Driven by strong consumer demand for used vehicles, AutoNation USA is looking forward to delivering a distinctive customer-centric experience. The company expects to have 130 stores in operation from coast to coast by the end of 2026.

On October 18, AN opened its AutoNation USA store on Denver Broadway. By offering a “1Price Pre-Owned” program that features low, haggle-free pricing and a customer-centric process, AN is looking forward to leveraging the AutoNation brand, scale, and capturing a larger share of the used vehicle market.

AN’s total consolidated revenue for its fiscal third quarter, ended September 30, 2021, increased 18% year-over-year to $6.38 billion. The company’s non-GAAP gross profit came in at $1.27 billion, representing a 28.2% rise from the prior-year period. Its adjusted operating income came in at $503.30 million, up 63.3% from the prior-year period. AN’s non-GAAP net income came in at $361.7 million, indicating a 70.8% year-over-year improvement. Its non-GAAP EPS increased 115.1% year-over-year to $5.12. The company had $72 million in cash and cash equivalents as of September 30, 2021.

The consensus EPS estimate of $17.44 for the current year represents a 144.9% rise from the prior-year period. AN surpassed the consensus EPS estimates in three of the trailing four quarters. Analysts expect AN’s revenue to come in at $25.76 billion for the current year, indicating a 26.4% year-over-year improvement. The company’s EPS is expected to grow at a rate of 24.4% per annum over the next five years.

The stock has gained 58.4% year-to-date and ended yesterday’s trading session at $110.89. In terms of forward EV/Sales, AN is currently trading at 0.45x, 67.8% lower than the 1.40x industry average. In terms of forward Price/Sales, AN is currently trading at 0.28x, 74.9% lower than the industry average of 1.12x. 

It is no surprise that AN has an overall A rating, which equates to Strong Buy in our POWR Ratings system.

The stock has an A grade for Value, and a B grade for Quality and Growth. Click here to see the additional ratings for AN (Stability, Momentum, and Sentiment).

The stock is ranked #4 in the B-rated Auto Dealers & Rentals industry.  

KT Corporation (KT)

Based in South Korea, KT operates as an integrated telecom and digital platform service provider worldwide. The company offers principal services that include mobile, Broadband, IPTV, B2B communications, and fixed-line telephony. KT operates media content production, finance, real estate development, and commerce through its subsidiaries. KT has a market capitalization of $6.39 billion.

On September 9, 2021, KT signed a Stock Purchase Agreement (SPA) with Malaysia-based Kuok Group to acquire Singapore-based Epsilon Global Communications Pte, Ltd. for $145 million. By acquiring Epsilon, KT will continue to accelerate the transformation into DIGICO, a digital platform company, by combining global data business infrastructure and advanced services with AI services (GiGA Genie) and robots into the digital transformation (DX) business.

On June 14, 2021, KT and NeuroSigma, Inc. formed a strategic partnership to develop and commercialize electronic therapies that treat neurological and neuropsychological disorders, including ADHD, depression, and epilepsy. Through this partnership, KT will support the design and development of next-generation versions of NeuroSigma’s Monarch eTNS products incorporating AI, big data, and cloud capabilities, advanced monitoring, and AI analysis services, provided through KT’s digital healthcare platform, and commercialization and manufacturing partnerships in Korea.

KT’s operating revenues for its fiscal third quarter ended September 30, 2021, increased 11.6% year-over-year to KRW6.22 trillion ($5.28 billion). The company’s operating income came in at KRW382.40 billion ($32 million), up 30% from the prior-year period. KT’s net income came in at KRW337.70 billion ($29 million), indicating a 46.9% year-over-year improvement. The company had KRW3.09 trillion ($2.62 billion) in cash and cash equivalents as of September 30, 2021.

The stock has gained 20.5% year-to-date and closed yesterday’s trading session at $13.51. KT’s 0.73x forward EV/Sales is 70.4% lower than the 2.47x industry average. In terms of forward Price/Sales, KT is currently trading at 0.40x, 76.5% lower than the industry average of 1.71x. 

KT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system.

The stock has an A grade for Value and Stability and a B grade for Growth. Click here to see the additional ratings for KT (Momentum, Quality, and Sentiment).  

KT is ranked #5 of 48 stocks in the B-rated Telecom – Foreign industry. 

Mazda Motor Corporation (MZDAY)

Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles and related automobile parts internationally. The company’s principal products include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual transmissions for vehicles. It also engages in the distribution of used automobiles and special purpose vehicles, automobile delivery inspection, and bodywork business. It has a market capitalization of $4.88 billion.

On December 6, 2021, MZDAY announced the introduction of the Mazda2 Hybrid in Europe from the spring of 2022. Providing low fuel consumption and a powerful, seamless driving experience with the latest safety technology, the Mazda2 Hybrid is an OEM model supplied by Toyota Motor Corporation’s (TM) subsidiary Toyota Motor Europe subsidiary and will be added to the Mazda2 lineup in Europe and sold as MZDAY’s own brand vehicle. Both companies are looking forward to gaining a wider market reach in Europe.

On November 16, 2021, MZDAY’s Mazda North American Operations premiered the Mazda CX-50 crossover SUV, which will be added to its North American lineup. Being the first model produced at Mazda Toyota Manufacturing U.S.A., Inc., a joint venture factory between MZDAY and TM, the companies expect to meet the high demand off-road performance in their vehicle in the U.S. market.

MZDAY’s operating income for its fiscal second quarter, ended September 30, 2021, increased 42.1% year-over-year to ¥13.64 billion ($119.44 million). The company’s net income came in at ¥23.85 billion ($208.95 million) for the quarter, compared to a loss of ¥93.03 billion ($814.87 million) in the prior-year period. Its EPS came in at ¥37.84. The company had ¥813.91 billion ($7.13 billion) in cash and cash equivalents as of September 30, 2021.

Analysts expect MZDAY’s revenue to rise 47.5% year-over-year to $28.82 billion in the current year. The stock has gained 14.5% year-to-date and ended yesterday’s trading session at $3.82.

In terms of forward EV/Sales, MZDAY is currently trading at 0.19x, 86.6% lower than the 1.40x industry average. In terms of forward Price/Sales, MZDAY is currently trading at 0.17x, 84.9% lower than the industry average of 1.12x. 

MZDAY’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.

MZDAY has an A grade for Value and a B grade for Growth, Stability, and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for MZDAY’s Momentum and Sentiment here.

MZDAY is ranked #1 of 67 stocks in the Auto & Vehicle Manufacturers industry.

Hillenbrand, Inc. (HI)

With a market capitalization of $3.62 billion, HI operates as a diversified industrial company, manufactures, and sells premium business-to-business products and services worldwide. The company operates through Advanced Process Solutions; Molding Technology Solutions; and Batesville. It designs equipment and systems used in processing applications and offers compounding and extruding equipment, bulk materials handling systems, and related engineering services.  

HI’s net revenue for its fiscal fourth quarter, ended September 30, 2021, increased 8.8% year-over-year to $754.90 million. The company’s gross profit came in at $241.30 million for the quarter, representing a marginal improvement from the prior-year period. Its pre-tax income came in at $69.50 million, up 489% from the prior-year period. HI’s adjusted net income came in at $74.30 million for the quarter, representing a 7.4% year-over-year improvement. Its adjusted EPS increased 8.7% year-over-year to $1. The company had $908.50 million in cash and cash equivalents as of September 30, 2021.

The consensus revenue estimate of $2.87 billion for the current year represents a marginal year-over-year improvement. HI surpassed the Street EPS estimates in each of the trailing four quarters. Analysts expect the company’s EPS to grow at a rate of 12% per annum over the next five years.

The stock has gained 26% year-to-date and closed yesterday’s trading session at $50.14. HI’s 1.57x forward EV/Sales is 19.9% lower than the 1.96x industry average. In terms of forward Price/Sales, HI is currently trading at 1.22x, 20.9% lower than the industry average of 1.54x. 

HI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system.

The stock has an A grade for Value and a B grade for Sentiment and Quality. Click here to see the additional ratings for HI (Stability, Growth, and Momentum).  

HI is ranked #6 of 41 stocks in the B-rated Industrial – Manufacturing industry.

PAG shares were trading at $101.90 per share on Wednesday afternoon, up $1.43 (+1.42%). Year-to-date, PAG has gained 75.21%, versus a 26.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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