Cooling inflation readings have helped fuel a strong comeback of the stock market from last year’s steep losses. The recent Gross Domestic Product (GDP) figures from the Commerce Department showed that the U.S. economy expanded by 2.9% in the fourth quarter of 2022, driven by consumer spending.
As inflation fell to the lowest level in over a year to 6.4% in January, it has stoked some optimism among investors that the central bank may be able to bring inflation down without tipping the economy into a recession.
However, inflation’s cooling trend is moderating. Further, Fed Chairman Jerome Powell insisted that “these are the very early stages” of disinflation. He added that the disinflationary process still has a “long way to go.”
Moreover, January’s job report showed that the number of job openings remains relatively high compared to the number of unemployed and that the softness in the labor market has not developed yet. With the job market remaining too tight and the wage pressures not being consistent with the Fed’s 2% inflation target rate, this week’s Fed minutes will likely confirm that no pause is coming soon.
Federal Reserve officials have expressed that the U.S. central bank would need to keep raising interest rates gradually to tame inflation. They also suggested that a hot jobs market might push borrowing costs higher than they had thought.
Given this uncertain economic backdrop, investing in fundamentally sound stocks CVS Health Corporation (CVS) and Overseas Shipholding Group, Inc. (OSG), which are well-positioned to soar higher this year, could be wise.
CVS Health Corporation (CVS)
CVS is a health service provider operating through four segments: Health Care Benefits; Pharmacy Services; Retail/LTC; and Corporate/Other. Its offerings include health & wellness services, health plans, pharmacy services, and prescription drug coverage.
On February 8, CVS entered into an agreement to acquire Oak Street Health, Inc. (OSH) for approximately $10.6 billion. With this acquisition, the company is expected to further advance its care delivery strategy for consumers by reducing medical costs and improving health outcomes.
On January 24, CVS Accountable Care Organization, Inc., a division of the CVS Health family of businesses, announced a collaboration with RUSH University System for Health to expand access for Medicare patients to RUSH clinical services in the Chicago area. This agreement reflects a strong commitment and establishes a new Accountable Care collaboration emphasizing health equity, coordinated care, and improved patient access.
In terms of forward EV/Sales, CVS is trading at 0.52x, 87.2% lower than the industry average of 4.04x. Its forward EV/EBITDA multiple of 8.38 is 37.8% lower than the industry average of 13.47. In addition, the stock’s forward Price/Sales of 0.35x compares to the industry average of 4.65x.
CVS’ total revenue for the fiscal fourth quarter that ended December 31, 2022, increased 9.5% year-over-year to $83.85 billion. The company’s operating income grew 62.3% year-over-year to $3.62 billion, while its attributable net income rose 76.3% from the year-ago value to $2.30 billion. Also, its EPS increased 78.6% year-over-year to $1.75.
For the quarter ending March 31, 2023, CVS’ revenue is expected to improve 3.6% year-over-year to $79.56 billion. Its EPS for the quarter ending June 30, 2023, is expected to increase 2.1% year-over-year to $2.45. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has lost marginally over the past month to close the last trading session at $88.58.
CVS’ solid prospects are reflected in its POWR Ratings. It has an overall rating of B, translating 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.
It has a B grade for Value and Stability. It is ranked first out of four stocks in the B-rated Medical - Drug Stores industry. To see the other ratings of CVS for Growth, Momentum, Sentiment, and Quality, click here.
Overseas Shipholding Group, Inc. (OSG)
OSG is the owner and operator of a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products in the U.S. flag trade. The company serves independent oil traders, refinery operators, and government entities.
On December 8, 2022, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA for an additional three-year term commencing in December 2023.
“We believe the market continues to support attractive commercial opportunities for these vessel leases to supplement the strong and stable cash flow generation from our niche businesses,” said Sam Norton, OSG’s President and CEO.
On November 15, 2022, the company’s Board of Directors announced the purchase of $5 million shares of its common stock from Cyrus Capital for $2.86 per share. The price paid in this share purchase equates to an enterprise value of roughly 4.5 times the expected adjusted EBITDA for 2022, an implied valuation considered very attractive for OSG.
OSG’s shipping revenues increased 30.9% year-over-year for the third quarter that ended September 30, 2022, to $123.06 million. The company’s net income came in at $13.25 million, compared to a net loss of $16.01 million in the year-ago period. Also, its EPS came in at $0.15, compared to a loss per share of $0.18 in the prior-year period.
In terms of trailing 12-month EV/Sales, OSG is trading at 1.79x, marginally lower than the industry average of 1.80x. Its trailing 12-month Price/Sales multiple of 0.76 is 37.7% lower than the industry average of 1.22. In addition, the stock’s trailing 12-month Price/Book ratio of 0.93x compares to the industry average of 1.74x.
Over the past year, the stock has gained 109.9% to close the last trading session at $3.80.
OSG’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.
It has an A grade for Momentum and a B for Growth, Value, and Quality. In the 46-stock B-rated Shipping industry, it is ranked first. Click here to see additional ratings of OSG for Stability and Sentiment.
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CVS shares were trading at $88.58 per share on Monday morning, up $0.61 (+0.69%). Year-to-date, CVS has declined -4.29%, versus a 6.49% 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.
2 Stocks on Track for Massive Gains in 2023 StockNews.com
