The major stock indices have dipped lately, triggered by concerns over rising Treasury yields, high inflation, and the central bank’s potential tightening of monetary policy in the near term. The 10-year Treasury yield was hovering around 1.48% on October 4 after hitting 1.56% last week, the highest point since June.
However, Mark Haefele, the chief investment officer of global wealth management at UBS, believes that worries are “likely to fade soon,” and the market should soon get back on track. Moreover, strategists expect stocks to eclipse their recent highs after a rocky month as the market enters a “normally positive period.”
China Petroleum & Chemical Corporation (SNP), AutoNation Inc. (AN), and Vista Outdoor Inc. (VSTO) look undervalued at their current price levels. They are fundamentally well-positioned to deliver significant upside in the near term. So, it could be wise to bet on them right now.
China Petroleum & Chemical Corporation (SNP)
SNP is a China-based energy and chemical company that operates in the oil and gas and chemical industries. Exploration and Production; Refining; Marketing and Distribution; Chemicals; and Corporate and Other are the five operational segments of the company. In addition, it owns and manages oil depots and service stations and distributes and sells refined petroleum products, such as gasoline and diesel, via wholesale and retail channels.
Last month, Shanghai Environment and Energy Exchange (SEEE) issued the first carbon-neutral petroleum certificate to SNP. The company will officially introduce carbon-neutral gasoline and diesel products to the public at approved gas stations, and as part of a collaborative effort, Sinopec will deliver 5,417 tons of jet fuel to China Eastern Airlines to help them create carbon-neutral flights.
Also, in August, SNP proved another 34.029 billion cubic meters of natural gas at the Zhongjiang Gas Field, bringing the total known natural gas reserves in the Sichuan Basin to 106.1 billion cubic meters, promoting Sinopec’s clean energy supply capacity while assisting the Sichuan and Chongqing regions in establishing China’s first 100-billion-cubic-meter natural gas production facility.
SNP’s revenue increased 22.1% year-over-year to RMB1261.60 billion ($195.57 billion) for the six months that ended June 30, 2021. Its operating income came in at RMB58.11 billion ($9.01 billion), compared to an operating loss of RMB21.66 billion ($3.36 billion) in the prior period. The company reported a net income of RMB39.95 billion ($6.19 billion), compared to a net loss of RMB21.84 billion ($3.39 billion). In addition, its cash from operating activities grew 18.3% from the year-ago value to RMB47.74 billion ($7.40 billion).
The company’s EPS is expected to grow 114.9% year-over-year to $8.51 in fiscal 2021. Analysts expect SNP’s revenue to increase 40.2% year-over-year to $416.6 billion in the current year. The stock has gained 23.9% over the past year and 10.3% over the past nine months.
In terms of forward Price/Sales, SNP is currently trading at 0.15x, 89.7% lower than the industry average of 0.15x. Also, in terms of its forward non-GAAP P/E, the stock is currently trading at 6.14x, 49.7% lower than the industry average of 12.22x.
SNP’s POWR Ratings reflect this promising outlook. The company has an overall grade of B, which translates to a Buy rating in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SNP also has an A grade for Value and Momentum, and a B for Growth. Within the Energy – Oil & Gas industry, it is ranked #14 out of 89 stocks.
To see additional grades for Stability, Sentiment, and Quality, click here.
AutoNation Inc. (AN)
ANI operates as an automotive retailer in the United States. Domestic; Import; and Premium Luxury are the three operational segments of the company. It provides various products and services, including new and used vehicles and parts and services, such as automotive repair and maintenance, wholesale parts, and collision services. It owned and operated 315 new vehicle franchises from 230 stores as of December 31, 2020.
Last month, AN launched AutoNation USA Denver 104, the company’s second of five pre-owned car locations planned for this year. By the end of 2026, AN expects to have over 130 AutoNation USA locations open from coast to coast.
During the second quarter that ended June 30, 2021, AN’s revenue increased 54% year-over-year to $6.98 billion. Its operating income grew 163.3% from the year-ago value to $530.2 million, while its net income surged 37.5% year-over-year to $384.9 million over this period. The company’s EPS increased 51.9% from the year-ago value to $4.83.
The consensus EPS estimate of $15.39 for the current year represents a 116.2% improvement year-over-year. Analysts expect AN’s revenue to increase 26.2% year-over-year to $25.73 billion in fiscal 2021. The stock has gained 93.5% over the past year and 64.9% year-to-date.
In terms of forward non-GAAP P/E, AN is trading at 7.81x, 44.8% lower than the industry average of 14.16x. In addition, in terms of its forward EV/Sales, the stock is currently trading at 0.48x, 66.6% lower than the industry average of 1.44x.
AN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, which equates to a Strong Buy rating in our POWR Ratings system. The stock also has an A grade for Value, and a B for Sentiment and Quality. In the B-rated Auto Dealers & Rentals industry, it is ranked #2 out of 25 stocks.
In total, we rate AN on eight different levels. Beyond what we’ve stated above, we have also given AN grades for Growth, Stability, and Momentum. Get all of AN’s ratings here.
Vista Outdoor Inc. (VSTO)
VSTO is a consumer product designer, producer, and marketer in the outdoor sports and recreation industry. Shooting Sports and Outdoor Products are the two segments in which the company operates. It serves a wide variety of consumer bases, ranging from outdoor enthusiasts, hunters and recreational shooters, athletes to law enforcement and military professionals.
Last month, VSTO acquired Foresight Sports. This acquisition will complement its product portfolio with an innovative business, which is projected to outperform its long-term growth and operating margin objectives.
During the first quarter that ended June 27, 2021, VSTO’s net sales increased 38.4% year-over-year to $662.91 million. Its net income grew 153.8% from the year-ago value to $102.73 million for this period, while its EPS increased 147.8% from the prior-year quarter to $1.71. Also, the company’s gross profit surged 92.6% year-over-year to $241.43 million over this period.
The company’s EPS is expected to grow 67.5% year-over-year to $6.13 in the current year. Analysts expect VSTO’s revenue to increase 24.8% year-over-year to $2.78 billion in fiscal 2022. VSTO’s stock has gained 85.5% over the past year and 73.7% year-to-date.
In terms of forward Price/Book, VSTO’s 2.21x is 35.1% lower than the industry average of 3.40x. In addition, its forward non-GAAP P/E of 6.62x is 53.2% lower than the industry average of 14.16x.
VSTO’s POWR Ratings reflect this promising outlook. The company has an overall grade of B, which translates to a Buy rating in our proprietarys rating system. VSTO also has an A grade for Value, and a B for Sentiment and Quality. Within the A-rated Athletics & Recreation industry, it is ranked #3 out of 36 stocks.
Click here to see additional grades for Growth, Stability, and Momentum.
Note that VSTO 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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SNP shares were trading at $51.61 per share on Wednesday afternoon, up $1.05 (+2.08%). Year-to-date, SNP has gained 25.09%, versus a 17.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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