Cyclical stocks tend to be influenced by an economy’s current performance. And the faster-than-expected macroeconomic recovery on the back of a rapid vaccination program has been driving U.S. consumer spending over the past couple of months.
The United States economy is now officially in recovery. The country’s GDP rose at a 6.4% annualized rate in the fiscal first quarter, ended March 31. Also, the economy also saw its unemployment rate tumble in Q1. Given this backdrop, cyclical stocks are expected to gain substantially in the near term.
We think AT&T Inc. (T), McDonald’s Corporation (MCD), and Nutrien Ltd. (NTR) have the potential to capitalize on their respective industry tailwinds with the economic recovery. This, coupled with their strong fundamentals, make them sound additions to one’s portfolio.
AT&T Inc. (T)
T is a provider of telecommunications, media, and technology services worldwide. The company operates through three segments—Communications, WarnerMedia, and Latin America. Its services and products include wireless communications, data/broadband and Internet services, video services, local exchange services, long-distance services, telecommunications equipment, managed networking and wholesale services.
On May 4, Cherish Health, a Cambridge Technology innovator, partnered up with T to use T’s FirstNet high-speed broadband communications in its advanced biosensor that monitors a patient’s respiration, oxygen levels, temperature, and heart rate. Both companies hope this biosensor will aid healthcare organizations racing to cope with the COVID-19 pandemic.
On May 3, T launched a new purpose-built FirstNet Cell Site in Buttonwood, Lycoming County. Through this expansion, the company hopes to help advance public safety and improve area coverage around its neighborhoods. In April, T and Cradlepoint expanded their joint network offerings to deliver the most comprehensive portfolio of 5G solutions in the U.S. With Cradlepoint’s 5G wideband adapters and routers and its NetCloud Service, and T’s Wireless Broadband network, these comprehensive, enterprise-tailored 5G solutions give businesses the flexibility to choose the solution, speed, quality of service, and management structure that works for them.
T’s operating revenues increased 2.7% year-over-year to $4394 billion for the fiscal year 2021 first quarter, ended March 31, 2021. The company’s adjusted operating income increased 13.7% sequentially to $8.89 billion. Its net income came in at $7.94 billion for the quarter, compared to a $13.52 net loss in the fourth quarter of 2020. T’s $13.56 billion in adjusted EBITDA represents a 5.2% improvement sequentially. Its adjusted EPS increased 14.7% sequentially to $0.86. As of March 31, T had $11.43 billion in cash and cash equivalents, up 13.8% year-over-year.
A $0.78 consensus EPS estimate for the third quarter, ending September 30, represents a 2.7% rise year-over-year. T surpassed consensus EPS estimates in three of the trailing four quarters. The $42.63 billion consensus revenue estimate for the current quarter, ending June 30, represents a 4.1% gain year-over-year. The stock has gained 18.4% over the past six months to close yesterday’s trading session at $32.02.
T’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth and Stability. We have also graded T for Value, Quality, Sentiment and Momentum. Click here to access all T’s ratings.
T is ranked #1 of 25 stocks in the Telecom – Domestic industry.
McDonald’s Corporation (MCD)
MCD operates and franchises McDonald’s restaurants in the United States and internationally. The company operates through three segments—U.S., International Operated Markets and International Developmental Licensed Markets. Its restaurants offer various food products and beverages as well as a breakfast menu.
On April 19, MCD, in collaboration with the South Korean pop band BTS, launched the BTS Meal that will be available from May 26at its participating restaurants worldwide. Inspired by MCD’s South Korean recipes, MCD hopes to attract more customers through this celebrity signature order program.
MCD paid a $1.29 per share of common stock share quarterly cash dividend on March 15. In February, it relaunched The Shamrock Shake and The OREO Shamrock McFlurry in its menus to mark the unofficial start to spring. Back by popular demand, these desserts are likely to increase MCD’s sales this spring.
For its fiscal year 2021 first quarter, ended March 31, MCD’s total revenues increased 8.7% year-over-year to $5.12 billion. The company’s operating income came in at $2.28 billion, which represented a 34.7% improvement year-over-year. While its net income increased 38.9% year-over-year to $1.54 billion, its non-GAAP EPS increased 30.6% from the prior-year period to $1.92.
For the current quarter, ending June 30, 2021, analysts expect MCD’s EPS to be $2.08, which represents a 214.7% improvement year-over-year. Analysts expect the stock’s revenue to be $5.49 billion for the current quarter, up more than 46% from the prior-year period. The company’s EPS is expected to grow at 20.4% per annum over the next five years.
MCD has gained 28.6% over the past year and 17.3% over the past nine months. It closed yesterday’s trading session at $233.86.
It’s no surprise that MCD has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Quality, and a B grade for Growth, Stability and Sentiment. Click here to see the additional ratings for MCD (Value and Momentum).
MCD is ranked #4 of 46 stocks in the B-rated Restaurants industry.
Nutrien Ltd. (NTR)
NTR is a Canada-based provider of crop inputs and services. The company operates through four segments: Retail Ag Solutions (Retail), Potash, Nitrogen, and Phosphate. It also distributes crop nutrients, crop protection products, seeds, and merchandise products through approximately 2,000 retail locations in the United States, Canada, South America, and Australia.
On April 8, , NTR released its 2021 environmental, social and governance (ESG) report. It launched six commitments that address feeding the planet sustainably, supporting environment and climate action, driving inclusive agriculture, and helping meet the United Nations’ Zero Hunger Sustainable Development Goal. Its ‘Feeding the Future’ Plan reflects NTR’s commitment to drive systemic change by helping to scale sustainable and inclusive agriculture by 2030 and set science-based climate emissions targets through the Science Based Targets initiative (SBTi).
In February, the Toronto Stock Exchange (TSX) accepted NTR’s notice to purchase up to five percent (or 28.46 million shares) of its outstanding common shares. NTR believes the repurchase represents an attractive investment opportunity and will deliver a strong return on capital to its shareholders over time.
For its fiscal 2021 first quarter, ended March 31, the company’s sales increased 11% year-over-year to $4.66 billion. NTR’s gross profit came in at $1.16 billion, which represents a 30.6% rise from its prior-year period. Its adjusted net income was $165 million for the quarter, compared to a $69 million net loss in the first quarter of 2020. Also, its adjusted EPS was $0.29, compared to a $0.12 loss per share in the year-ago period.
The stock has gained 64.8% over the past year and 67% over the past nine months. It closed yesterday’s trading session at $58.35.
NTR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock also has an A grade for Sentiment, and a B grade for Growth. In addition to the POWR Ratings grades we’ve just highlighted, one can see NTR’s ratings for Value, Quality, Stability and Momentum here.
NTR is ranked #5 of 30 stocks in the Agriculture industry.
(Note that NTR is one of the few stocks handpicked currently in the POWR Growth Total Return portfolio. Learn more here.)
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T shares fell $0.02 (-0.06%) in after-hours trading Wednesday. Year-to-date, T has gained 15.28%, versus a 11.56% 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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