The clear disconnect between the real economy and the stock market over the past year was driven by the impressive growth rates of technology giants. In fact, sudden changes in consumer and business behavior helped some of the largest companies operating the United States and globally to achieve sky-high valuations.
With the biggest players dominating the markets, smaller players with high growth potential have remained relatively unnoticed by many investors. As economic recovery is expected to be a key focus this year, facilitated by the incoming Biden Administration, multiple small and mid-cap companies are poised to outperform the broader market.
Companies such as Wipro Limited (WIT), United Microelectronics Corporation (UMC), First Horizon Corporation (FHN) and Innoviva, Inc. (INVA) generated profits over the past year, which is an indication of their business strength and resiliency. But they are still trading at affordable prices. As consumer spending picks up with an economic recovery, we believe investing in these companies should help investors generate hefty returns.
Wipro Limited (WIT)
WIT is a leading global information technology, consulting, and business process services company. It operates primarily in the field of cognitive computing, hyper-automation, robotics, cloud, analytics, and emerging technologies to help its clients adapt to the digital world. It operates in three segments: IT Services, IT Products, and India State Run Enterprise Services (ISRE).
On November 26, WIT entered a strategic partnership with Schneider-Neureither & Partner (SNP) SE. Under the agreement, WIT will leverage SNP’s data transformation platform to allow its clients to evaluate and simulate the optimal transformation path, thereby reducing efforts and increasing the predictability of outcomes. This benefit from the combined effort will help customers accelerate their enterprise transformation.
On November 19, WIT was selected as a member of the global 2020 Dow Jones Sustainability World Index for the 11thyear in succession. This recognition reflects the company’s global standard for corporate sustainability and its commitment to having a positive social and environmental impact.
On December 10, WIT entered a partnership with LogiNext to launch an integrated logistics platform to deliver an end-to-end solution for supply chain customers. This will improve the speed of delivery and end-recipient experience, while strengthening the global supply chain infrastructure.
WIT’s gross profit has increased 5.8% year-over-year to $622 million in the fiscal second quarter ended September 30, 2020. Income from operating activities has risen 5.2% from the year-ago value to $382 million, while EPS has improved slightly from the same period last year to $0.06.
Analysts expect WIT’s revenues to grow 3.6% year-over-year to $2.16 billion in the current quarter ending March 31, 2021. The consensus EPS estimate of $0.06 for the current quarter indicates a 20% improvement year-over-year. The stock has gained 64.9% over the past year, closing yesterday’s trading session at $6.38.
How does WIT stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
A for Overall POWR Rating
You cannot ask for better. The stock is also ranked #4 of 14 stocks in the Outsourcing – Tech Services industry.
United Microelectronics Corporation (UMC)
UMC is a global semiconductor wafer foundry. The Company provides integrated circuit (IC) production for applications spanning every sector of the electronics industry. It operates through two segments: Wafer Fabrication and New Business, which includes providing solar energy solutions.
UMC was selected as a Dow Jones Sustainability Index (DJSI) global component in November 2020 for the 13th consecutive year. This recognizes the company’s sustainable business practices in promoting corporate sustainability and practicing social responsibility.
UMC’s revenues have increased 18.9% year-over-year to $1.54 billion in the third quarter ended September 30, 2020. Operating Income has risen 184.3% from the year-ago value, while EPS has increased 200% from the same period last year to $0.13.
Analysts expect UMC’s revenues to grow 14.4% year-over-year to $1.57 billion in the fourth quarter ended December 31, 2020. The consensus EPS estimate of $0.06 for the fourth quarter indicates a 20% improvement year-over-year. The stock has gained 225.7% over the past year to close yesterday’s trading session at $9.05.
UMC’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank. Among the 99 stocks in the Semiconductor & Wireless Chip Industry, it is ranked #22.
First Horizon Corporation (FHN)
FHN is a bank holding company providing various financial services through its subsidiary, First Tennessee Bank National Association. The company operates through four segments: Regional Banking, Fixed Income, Corporate, and Non-Strategic.
FHN’s announced its 2020 company-run capital stress test results late December, reflecting its continued strong risk management discipline. The Company’s minimum common equity tier 1 ratio under stress of 8.2% reflects an additional $3.10 billion in pre-tax loss absorption capacity above the 4.5% required regulatory minimum. The results demonstrate the company’s resiliency and the earnings power of its diversified business model and capital ratios, which was well above regulatory requirements.
FHN’s net interest income has increased 76.7% year-over-year to $532 million in the third quarter ended September 30, 2020. EPS has risen 171.4% from the year-ago value to $0.95 over the same period.
Analysts expect FHN’s revenues to grow 58.5% year-over-year to $784.34 million in the fourth quarter ended December 31, 2020. The consensus EPS estimate of $1.30 for the current year (ending December 31, 2021) indicates a 38.3% improvement year-over-year. The stock has gained 68.4% over the past six months to close yesterday’s trading session at $14.94.
FHN is rated a “Buy” in our POWR Ratings system. It has an “A” for Trade Grade and a “B” for Buy & Hold Grade and Industry Rank. In 33-stock Southeast Regional Banks Industry, it is ranked #17.
Innoviva, Inc. (INVA)
INVA engages in the development, commercialization, and financial management of biopharmaceuticals. It primarily develops medicines for the treatment of chronic obstructive pulmonary disease and asthma.
INVA’s net revenues have increased 34.9% year-over-year to $88.69 million in the fiscal third quarter ended September 30, 2020. Its income from operations has increased 38.9% from the year-ago value to $84.43 million over the same period, while royalties increased by 33% year-over-year to 92.15 million.
Analysts expect INVA’s revenues to grow slightly to $261.05 million in the fiscal 2020 ended December 31. The consensus EPS estimate of $2.20 for the fiscal 2020 indicates a 53.9% improvement year-over-year. Analysts expect INVA’s EPS to grow at 19.3% over the next five years. The stock has gained 20.5% over the past three months to close yesterday’s trading session at $12.56.
It is no surprise that INVA is rated “Buy” with an “A” for Trade Grade and Peer Grade, and a “B” for Industry Rank. It is currently ranked #74 of 481 stocks in the Biotech Industry.
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WIT shares rose $0.03 (+0.46%) in after-hours trading Tuesday. Year-to-date, WIT has gained 15.40%, versus a 1.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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