Between January to April this year, the S&P 500 posted its worst performance since 1939. The stock market has been grappling with recession fears amid mounting inflation, the Fed’s anticipated interest rate hike, COVID-19 lockdowns in parts of China, and the Russia-Ukraine war. The Dow was down 9% over April, while the tech-heavy Nasdaq Composite declined 21%.
However, the market has opened favorably this month. On Monday, the Dow rose 84 points, the S&P 500 gained 0.6%, while the Nasdaq increased 1.6%. However, the stock market remains under pressure, with the Federal Reserve widely expected to raise interest rates by 50 basis points soon and to provide further indications regarding its tightening monetary policy plans.
Despite the choppy market environment, the stocks of fundamentally strong companies Reliance Steel & Aluminum Co. (RS), Merck & Co., Inc. (MRK), Western Digital Corporation (WDC), Unilever PLC (UL), and NetEase, Inc. (NTES) have gained over the past week, while the S&P 500 shed more than 3%. Hence, these stocks might be solid bets in the near term.
Reliance Steel & Aluminum Co. (RS)
RS in Los Angeles is a diversified metal solutions provider and metal service center company internationally. It distributes several metal products, including alloy, aluminum, brass, copper, carbon, stainless steel, titanium, and specialty steel products. The company also provides metal processing services to different industries.
For its fiscal first quarter, ended March 31, RS’ net sales increased 58% year-over-year to $4.49 billion. Its non-GAAP net income attributable to Reliance and non-GAAP EPS improved 99.1% and 105.4%, respectively, from the same period in the prior year to $528.70 million and $8.42.
The $8.52 consensus EPS estimate for the quarter ending June 30, 2022, indicates a 68.4% year-over-year increase. The $4.39 billion consensus revenue estimate for the same quarter reflects a 38.5% rise from the prior-year quarter. Furthermore, RS has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
RS’ shares have gained 23.4% in price over the past year and 22% year-to-date to close yesterday’s trading session at $197.82. The stock has gained 3% over the past week.
RS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a 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.
RS has a Sentiment grade of A and a Growth, Momentum, and Quality grade of B. In the 33-stock Steel industry, it is ranked #6. The industry is rated A. Click here to see the additional POWR Ratings for RS (Value and Stability).
Merck & Co., Inc. (MRK)
MRK is a global healthcare company operating through Pharmaceuticals and Animal Health segments. Its pharmaceuticals segment markets human health pharmaceuticals and vaccines, while the Animal Health segment offers veterinary pharmaceuticals, vaccines, and monitoring products. MRK is headquartered in Kenilworth, N.J.
On April 29, MRK announced that the European Commission had approved KEYTRUDA, MRK’s anti-PD-1 therapy, for treating microsatellite instability-high (MSI-H) or deficient mismatch repair (dMMR) tumors in adults. The approval allows the marketing of the KEYTRUDA monotherapy in all 27 European Union member states plus Iceland, Lichtenstein, Norway, and Northern Ireland. On April 18, KEYTRUDA was approved by Health Canada. These approvals might bolster the company’s revenues.
For its fiscal first quarter of 2022, MRK’s sales were up 49.6% year-over-year to $15.90 billion. Its non-GAAP net income that excludes certain items improved 84.2% from the prior-year quarter to $5.43 billion. Its non-GAAP EPS that excludes certain items increased 84.5% from the same period in the prior year to $2.14.
The Street expects MRK’s EPS to improve 30.5% year-over-year to $1.71 for the quarter ending June 30, 2022, while the Street’s $13.87 billion revenue estimate for the same quarter indicates a rise of 21.7% from the prior-year quarter. In addition, MRK has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 23.3% in price over the past year and 14.4% year-to-date to close yesterday’s trading session at $87.65. MRK has gained 4.8% over the past week.
It is no surprise that MRK has an overall A rating, which translates to Strong Buy in our POWR Ratings system.
MRK has a Growth grade of A and a Value, Stability, Sentiment, and Quality grade of B. In the 167-stock Medical – Pharmaceuticals industry, it is ranked #2. To see the additional POWR Rating for Momentum for MRK, click here.
Western Digital Corporation (WDC)
WDC in San Jose, Calif., is a developer, manufacturer, and seller of data storage devices and solutions internationally. The company’s offerings include client devices such as hard disk drives (HDDs) and solid-state drives (SSDs) and data center devices and solutions like enterprise SSDs.
On April 14, WDC and Kioxia Corporation, a producer and seller of flash memory and SSDs, announced that they had finalized an agreement to jointly invest in the first phase of the Fab7 (Y7) manufacturing facility at Kioxia’s industry-leading Yokkaichi Plant in Japan. This might benefit the company in the near term.
On March 30, WDC and Samsung Electronics Co., Ltd. announced an agreement to t collaborate on standardizing and driving broad adoption of next-generation data placement, processing, and fabrics (D2PF) storage technologies. Rob Soderbery, EVP and GM, Flash Business Unit at WDC, said, “We are excited to bring these contributions to this joint initiative with Samsung in facilitating wider adoption of Zoned Storage for users and application developers.”
WDC’s net revenue increased 5.9% year-over-year to $4.38 billion in its fiscal third quarter, ended April 1. Its non-GAAP net income rose 63.8% from the prior-year quarter to $521 million. And its non-GAAP EPS improved 61.8% from the prior-year period to $1.65.
The Street’s $7.78 EPS estimate for its fiscal year 2022 indicates a 98.5% year-over-year improvement. And the Street’s $17.90 billion revenue estimate for the same year reflects a 22.8% rise from the prior year. In addition, WDC has beaten consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 11.4% in price to close yesterday’s trading session at $53.92. The stock has gained 7.3% over the past week.
According to our POWR Ratings, WDC has a Value grade of B. It is ranked #20 in the 44-stock Technology – Hardware industry. Click here to see the additional POWR Ratings for WDC (Growth, Momentum, Stability, Sentiment, and Quality).
Unilever PLC (UL)
UL, headquartered in London, is a fast-moving consumer goods company. It operates through the broad segments of Beauty & Personal Care; Foods & Refreshment; and Home Care.
On February 8, UL announced that it had agreed to sell its direct selling business in Thailand, Unilever Life, to RS Group. Suchada Theeravachirakul, Head of Unilever Life, said, “Unilever Life is a strong business supporting Thai people to have a sustainable source of income. We look forward to the next stage of Unilever Life under the ownership of RS Group.”
For its fiscal year 2021, UL’s turnover increased 3.4% year-over-year to €52.44 billion ($55.16 billion). Its net profit and EPS came in at €6.62 billion ($6.96 billion) and €2.32, respectively, up 9% and 9.4% from the prior year.
The $2.87 consensus EPS estimate for fiscal year 2023 reflects a 7.4% increase from the prior year. Likewise, the $62.19 billion consensus revenue estimate for the same year indicates a 3.3% year-over-year improvement.
The stock has gained 1.9% in price over the past week and closed yesterday’s trading session at $45.64.
NetEase, Inc. (NTES)
Headquartered in Hangzhou, China, NTES operates as an online services provider focused on gaming, communications, and commerce. The company, operating through the Online Games Services; Youdao; and Innovative Businesses and Others segments, develops PC and mobile games and offers licensed games from other developers.
On February 10, Warner Bros. Games and NTES announced the online launch of Harry Potter: Magic Awakened, a free-to-play immersive collectible card (CCG) and massively multiplayer (MMO) wizarding dueling game featuring a blend of strategy roleplay (RPG). With pre-registrations open, the game might add to the company’s revenue stream.
For its fiscal fourth quarter, ended December 31, NTES’ net revenues increased 23.3% year-over-year to $3.82 billion. Its non-GAAP net income attributable to the company’s shareholders and non-GAAP net income per ADS came in at $1.03 billion and $1.56, respectively, up 312.8% and 323.9% from the prior-year quarter.
The $1.08 consensus EPS estimate for its fiscal quarter ending June 30, 2022, indicates an 11.4% year-over-year increase. And the $3.66 billion consensus revenue estimate for the same quarter reflects an improvement of 15.1% from the prior-year period.
The stock has gained 11% in price over the past week and closed yesterday’s trading session at $94.29. It has gained 7.8% over the past five days.
This promising outlook is reflected in NTES’ POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. NTES has an A grade for Sentiment and a B grade for Value. In the 45-stock China industry, it is ranked #2.
In addition to the POWR Rating grades we have stated above, one can see NTES ratings for Growth, Momentum, Stability, and Quality here.
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RS shares were trading at $203.61 per share on Tuesday afternoon, up $5.79 (+2.93%). Year-to-date, RS has gained 26.10%, versus a -12.03% 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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