Last year was challenging for growth stocks, as value stocks trounced growth equities due to the Federal Reserve’s aggressive interest rate hikes to combat the soaring inflation. The outperformance is evident from the Russell 1000 Value index’s marginal decline over the past year, compared to the Russell 1000 Growth index’s 13.8% decline.
However, inflation declining for the sixth consecutive month in December has raised hopes that the slowdown will soon allow the Federal Reserve to end the cycle of aggressive interest-rate hikes and engineer a soft landing.
Regarding this, St. Louis Federal Reserve leader James Bullard expressed his optimism saying, "The probability of a soft landing has increased compared to where it was in the fall of 2022, where it was looking more questionable.” Hence, market experts are now eyeing a 25-basis-points hike at the Fed’s next meeting.
As the current market pressures show signs of receding, growth stocks could rebound strongly. Therefore, it could be wise to invest in fundamentally sound growth stocks Mazda Motor Corporation (MZDAY) and Berry Corporation (BRY), currently trading at discounted valuations.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles globally. The company’s main offerings include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual transmissions for automobiles.
On January 13, 2023, MZDAY launched the Mazda MX-30 e-Skyactiv R-EV, a plug-in hybrid vehicle powered by a rotary engine. Aiming to enhance driving experiences for its customers, this new launch should benefit MZDAY and boost its revenues.
In terms of forward EV/Sales, MZDAY is trading at 0.15x, 87.5% lower than the industry average of 1.20x. The stock’s forward EV/EBITDA of 2.32x is 76.5% lower than the industry average of 9.86x.
In the fiscal second quarter that ended September 30, 2022, MZDAY’s net sales increased 48.1% year-over-year to ¥1.03 trillion ($7.87 billion). Its gross profit rose 59% from the year-ago value to ¥224.02 billion ($1.72 billion).
The company’s operating income increased 448.4% from the year-ago value to ¥74.77 billion ($574.19 million), while its net income improved 468.1% year-over-year to ¥70.86 billion ($546.94 million).
The company’s EPS for the first half of the year ended September 30, 2022, came in at ¥136.19, representing a 259.9% year-over-year improvement. Also, MZDAY’s EBITDA and EBIT grew at CAGRs of 8.9% and 15.4%, respectively, over the past three years. Also, its net income has grown at a 37.1% CAGR over the past three years.
Additionally, its four-year average dividend yield is 2.62%, and its current dividend translates to a 4.02% yield.
Analysts expect MZDAY’s revenue to increase 48.9% year-over-year to $8.55 billion for the third quarter, which ended December 31, 2022. Over the past three months, the stock has gained 17.4% to close the last trading session at $3.72.
MZDAY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and Value and a B for Quality. Out of 64 stocks in the Auto & Vehicle Manufacturers industry, it is ranked #5. Click here to see the other ratings of MZDAY for Momentum, Stability, and Sentiment.
Berry Corporation (BRY)
BRY is an independent upstream energy company that develops and produces conventional oil reserves in the western United States. It operates in two segments: Development and Production; and Well Servicing and Abandonment.
On November 2, 2022, the company’s board of directors declared a dividend of $0.47 per share on its outstanding common stock, which was paid on November 28, 2022, to its shareholders. BRY’s four-year average dividend yield is 6.08%, and its forward annual dividend of $0.24 translates to a 2.62% yield on prevailing prices.
In terms of forward non-GAAP P/E, BRY is currently trading at 4.73x, 41.6% lower than the industry average of 8.10x. The stock’s forward EV/EBITDA and EV/EBIT of 2.71x and 4.08x are 50.3% and 45.2% lower than the industry averages of 5.45x and 7.44x, respectively. Also, its forward Price/Cash Flow of 2.27x compares with the 4.11x industry average.
In the third quarter that ended September 30, 2022, BRY’s total revenues and other increased 162.5% year-over-year to $376.45 million. Its adjusted net income increased 294.5% from the year-ago value to $45.52 million, while its adjusted earnings per share came in at $0.55, representing a 292.9% year-over-year improvement.
In addition, its EBITDA increased 63.5% from the year-ago value to $84.37 million. Over the past three years, BRY’s revenue and levered FCF grew at 16.1% and 87.6% CAGRs, respectively. Its EBITDA grew at a 1% CAGR over the same period.
The consensus EPS estimate of $1.94 for the fiscal year 2022 (ended December 31, 2022) represents a 674.4% improvement year-over-year. The consensus revenue estimate of $814.77 million for the previous year represents a 49.5% increase from the prior-year period. BRY has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 39.9% over the past six months to close the last trading session at $9.16.
It is no surprise that BRY has an overall rating of B, which translates to Buy in our proprietary rating system. Also, it has an A grade for Value and Momentum and a B for Growth. Within the B-rated Energy - Oil & Gas industry, it is ranked #4 among 92 stocks.
Beyond what we’ve stated above, we’ve also rated BRY for Stability, Sentiment, and Quality. Get all BRY ratings here.
MZDAY shares were trading at $3.81 per share on Wednesday morning, up $0.09 (+2.28%). Year-to-date, MZDAY has gained 1.33%, versus a 3.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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