The stock market has continued its rally so far this year, except for a few stocks that have retreated. However, the fundamental difference between this year’s rally and last year’s is that the broader economy is not significantly disconnected to the stock market this year. Because the economic recovery this year is a solid support for the stock market, investors are rotating to undervalued turnaround candidates that lagged the broader market last year due to lack of support from the economy and respective industry trends. Concern over rising inflation is another motivator for investors to shift away from expensive growth stocks.
The continued reopening of the economy on the back of a strong vaccination drive is expected to keep driving demand in various industries that struggled amid the pandemic, helping their stocks attract investors. Given this backdrop, we think it could be wise to bet on POSCO (PKX), Arrow Electronics, Inc. (ARW), Albertsons Companies, Inc. (ACI), and Huntington Ingalls Industries, Inc. (HII). They are all well positioned to capitalize on the economic recovery and are currently trading at discounts to their peers.
PKX is a South Korea-based company that manufactures and sells steel products. The company produces hot rolled steel, cold rolled steel, stainless steel, and other forms of steel. It provides its products mainly to automobile, construction, and shipbuilding industries.
To mark its 53rd anniversary, on April 5, 2021, PKX announced its decision to transform its business structure to focus on ‘Green & Mobility’ based on various eco-friendly car capabilities in the group. The company had launched ‘e Autopos’, an integrated brand of eco-friendly vehicles and solutions, in January, in line with its goal of leading the electric vehicle (EV) market.
On March 25, Roy Hill Holdings decided to pay KRW150 billion in dividends to PKX for the first quarter of 2021. Along with other companies, PKX had joined the Roy Hill iron ore mine development project in 2010, and invested KRW1.30 trillion to reliably procure high-quality iron ore. PKX is currently receiving 15 million tons of iron ore from Roy Hill, thus ensuring stable supply and secure profitability.
During its fiscal year 2021 first quarter, ended March 2021, PKX’s total revenue increased 10.5% year-over-year to KRW16.07 billion ($14.25 billion). The company’s gross profit came in at KRW2.14 trillion ($1.90 billion), which represents a 63.2% gain from the prior-year period. PKX’s operating profit is reported to be KRW1.55 trillion ($1.38 billion) for the quarter, up 120.1% from the prior-year period. Its net income increased 161.8% year-over-year to KRW1.14 trillion ($1.01 billion).
A consensus $8.49 EPS estimate for its current fiscal year, represents a 159.6% year-over-year improvement. The $58.14 billion consensus revenue estimate for the current year, represents a 26.1% rise from the prior-year period. PKX climbed 124.6% over the past year to close Friday’s trading session at $79.77.
In terms of non-GAAP forward P/E, PKX is currently trading at 9.40x, which is 43.6% lower than the 16.66x industry average. In terms of forward EV/EBITDA, PKX is currently trading at 3.87x, which is 55.5% lower than the 8.71x industry average.
It’s no surprise that PKX has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth, Value and Momentum, and a B grade for Stability. To see additional POWR Ratings for PKX’s Sentiment and Quality, click here.
PKX is ranked #3 of 34 stocks in the A-rated Steel industry.
Arrow Electronics, Inc. (ARW)
ARW is a provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions worldwide. The company serves original equipment manufacturers, value-added resellers, and manages service providers, contract manufacturers, and other commercial customers.
ARW and Submer, a leading innovator in advanced immersion cooling solutions for data centers, signed an agreement on April 29to provide highly efficient, high-density computing to enterprise customers in Europe, Middle East and Africa (EMEA). Combining ARW’s worldwide supply chain, engineering services and support capabilities with Submer’s innovative immersion solution and Dell Technologies’ (DELL) OEM solutions, will ease the deployment of environmentally sustainable data center solutions worldwide. This rising demand should help ARW significant revenues in the coming months.
On April 6, ARW signed a pan-European distribution agreement with global cybersecurity company OPSWAT to offer its cybersecurity suite of critical infrastructure protection products. Amid rising cyber-attack threats, OPSWAT solutions will detect unknown devices accessing critical infrastructure and ensure safety for ARW customers.
For its fiscal 2021 first quarter, ended April 3, 2021, ARW’s non-GAAP consolidated sales came in at $8.39 billion, which represented a 27.4% year-over-year improvement. The company’s non-GAAP gross profit increased 27.7% year-over-year to $930.11 million. Its non-GAAP operating income is reported to be $314.54 million for the quarter, up more than 101% year-over-year. While its non-GAAP net income increased 172.8% year-over-year to $215.53 million, its non-GAAP EPS increased 192.8% year-over-year to $2.84.
Analysts expect ARW’s EPS to improve 84.3% year-over-year for the current quarter, ending June 30, 2021 to $2.93. And its $8.49 billion consensus revenue estimate for the current quarter, represents a 28.5% rise on a year-over-year basis. Analysts expect the stock’s EPS to grow at 20% per annum over the next five years. ARW has gained 81.8% over the past year and closed Friday’s trading session at $122.15.
In terms of its non-GAAP forward P/E, ARW’s 10.14x is 59.5% lower than the 25.04x industry average. In terms of forward EV/sales, the stock is currently trading 92.2% lower than the industry average (0.32x versus 4.14x).
ARW’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 has a B grade for Growth and Value. In addition to the POWR Ratings grades we’ve just highlighted, one can see ARW’s ratings for Momentum, Stability, Sentiment and Quality here.
ARW is ranked #13 of 45 stocks in the B-rated Technology – Electronics industry.
Albertsons Companies, Inc. (ACI)
ACI operates as a food and drug retailer that offers grocery products, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services through its stores.
On May 3, 2021, ACI relaunched its Soleil sparkling water in four new flavors, including new special summer packaging with unique designs created by globally renowned artists. Beginning this month, the new designs will be featured in the exclusive ‘Sip to the Beat’ summer promotion using well-known digital music service Spotify (SPOT). The company hopes to generate good sales in the summer from this relaunch. ACI and Google (GOOGL) announced a multi-year partnership on March 30 to make shopping easier and more convenient for millions of customers nationwide. GOOGL’s technology expertise will improve ACI’s customer experience, thus helping to added revenues beyond the recovery period.
For its fiscal year 2020 fourth quarter, ended February 27, 2021, ACI’s net sales and other revenue came in at $15.77 billion, which represented a 2.2% improvement year-over-year. The company’s gross profit increased 3.2% year-over-year to $4.56 billion. Its adjusted net income came in at $347.20 million, up 78.7% from the prior-year period. And its adjusted EPS increased 81.8% year-over-year to $0.60.
Analysts expect ACI’s EPS for the current fiscal year, ending February 28, 2022, to be $1.79, up 21.6% year-over-year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. For its next fiscal year, ending February 28, 2023, analysts expect ACI’s revenue to be $67.32 billion, representing a 2.2% rise from the prior-year period.
ACI has gained 25.8% over the past nine months and 19.4% over the past six months. It closed Friday’s trading session at $18.75. In terms of forward EV/sales, ACI is currently trading at 0.35x, which is 84.1% lower than the 2.20x industry average. And in terms of its forward EV/EBITDA, the stock is currently trading at 6.50x, 50.1% lower than the 13.03x industry average.
ACI’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 stock has an A grade for Value, and a B grade for Quality. We have also graded ACI for Growth, Stability, Sentiment and Momentum. Click here to access all ACI’s ratings.
ACI is ranked #10 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
Huntington Ingalls Industries, Inc. (HII)
HII is a military shipbuilding company and a provider of professional services to partners in government and industry. The company’s business consists of the design, construction, repair and maintenance of nuclear-powered ships and non-nuclear ships for the United States Navy and Coast Guard, as well as the refueling and overhaul and inactivation of nuclear-powered ships for the United States Navy.
HII debuted its Proteus unmanned surface vessel (USV) in partnership with Sea Machines on May 20, 2021, for testing and development of autonomy capabilities. After completing a successful demonstration off the coast of Panama, the launch marks a significant milestone in HII’s commitment to advancing unmanned systems capabilities and its continued partnership with Sea Machines to further develop USV solutions for the government and its commercial customers.
On April 19, HII’s Ingalls Shipbuilding division received a $107 million contract modification from the U.S. Navy to provide long-lead-time material and advance procurement activities for amphibious assault ship LHA 9. This funding should strengthen its suppliers and sustain jobs across the country in support of LHA 9 construction.
HII’s sales and service revenues have increased significantly from the prior-year period to $2.28 billion for its fiscal year 2021 first quarter, ended March 31, 2021. This increase is driven primarily by a rise in revenues from Ingalls Shipbuilding and Newport News Shipbuilding segments. The company’s $143 million in adjusted net earnings for the quarter represents a 44.4% improvement from the prior-year period. Its adjusted EPS increased 46.5% year-over-year to $3.56.
A $2.18 consensus EPS estimate for the current quarter, ending June 30, 2021, represents a 97.7% improvement year-over-year and the $2.18 billion consensus revenue estimate for the current quarter represents a 2% rise from the prior-year period. HII has gained 34.7% over the past year and closed Friday’s trading session at $213.67. In terms of its non-GAAP forward P/E, HII’s 16.45x is 23.9% lower than the 21.62x industry average. In terms of forward EV/sales, the stock is currently trading 46.4% lower than the industry average (1.08x versus 2.01x).
HII’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system.
TGNA has an A grade for Value, and a B grade for Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see HII’s ratings for Growth, Stability, Sentiment, and Momentum here.
Out of 66 stocks in the Air/Defense Services industry, HII is ranked #8.
PKX shares were trading at $79.80 per share on Monday afternoon, up $0.03 (+0.04%). Year-to-date, PKX has gained 28.07%, versus a 12.64% 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…