Investor sentiment has significantly suffered this year due to the Fed's tenacious battle against inflation. The most widely followed benchmark indices have lost substantially amid the broader market sell-off.
The S&P 500 and the Dow Jones Industrial Average have lost about 20% and 10% year-to-date, respectively. As a result, many quality stocks are currently trading at attractive valuations.
Poppy Fox, investment manager at wealth managers Quilter Cheviot, said, “There can be some sound logic in buying shares of companies after their price takes a tumble, particularly if you continue to believe in the investment case.”
Moreover, Savita Subramanian, BofA Securities head of U.S. equity and quantitative strategy, said, “We continue to prefer value over growth, with growth in the middle of a perfect storm of higher rates + weakening fundamentals.” Investors’ interest in value stocks is evident from the Vanguard Value ETF’s (VTV) 5.5% gains over the past month.
Given this backdrop, we think fundamentally sound and undervalued stocks Verizon Communications Inc. (VZ) and United Parcel Service, Inc. (UPS) are solid additions to one’s portfolio now.
Verizon Communications Inc. (VZ)
VZ and its subsidiaries offer communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. Its segments are Consumer and Business.
On October 31, 2022, VZ and World Champion Fantasy, a leading technology developer of PlayerX, announced their multi-year contract.
Mike Caralis, VP of Business Markets at VZ Business, said, “We are excited for this opportunity to partner with such an innovative, forward-thinking company that is ready to tap the full potential of the rapidly growing Esports and gaming markets.”
In terms of forward Price/Book, VZ’s 1.72x is 10% lower than the industry average of 1.91x. Its forward Price/Cash Flow multiple of 4.12 is 49.9% lower than the industry average of 8.22.
VZ's operating revenues came in at $34.24 billion for the third quarter ended September 30, 2022, up 4% year-over-year. Moreover, its wireless equipment revenues came in at $6.58 billion, up 22.9% year-over-year. Also, its total assets came in at $375.09 billion for the period ended September 30, 2022, compared to $366.60 billion for the period ended December 31, 2021.
VZ's revenue is expected to increase 2.5% year-over-year to $137 billion in 2022. Its EPS is expected to increase 2.2% per annum for the next five years. It surpassed EPS estimates in three of four trailing quarters. VZ’s shares have gained marginally intraday to close the last trading session at $37.24.
VZ has an overall rating of B, translating to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VZ has a B grade for Growth and Stability. In the Telecom - Domestic industry, it is ranked #2 out of 20 stocks. Click here to see the additional POWR Ratings for Momentum, Sentiment, Value, and Quality for VZ.
United Parcel Service, Inc. (UPS)
UPS offers letter and package delivery, transportation, logistics, and related services. It operates through two segments, U.S. Domestic Package and International Package.
On October 25, 2022, Carol Tomé, UPS' CEO, said, "The macro environment is very dynamic, but we are on track to achieving our 2022 financial targets by executing our strategy and controlling what we can control."
In terms of its forward non-GAAP P/E, UPS’ 12.83x is 22.4% lower than the industry average of 16.54x, while its forward Price/Cash Flow of 9.95x is 19.6% lower than the industry average of 12.36x.
UPS' revenue increased 4.2% year-over-year to $24.16 billion for the third quarter that ended September 30, 2022. Its operating profit came in at $3.11 billion, up 7.5% year-over-year. Moreover, Its EPS came in at $2.96, up 11.7% year-over-year.
UPS' revenue is expected to increase 4.3% year-over-year to $101.46 billion in 2022. Its EPS is estimated to grow 6.6% year-over-year to $12.93 in 2022. It surpassed EPS estimates in all four trailing quarters. UPS’ shares have gained marginally intraday to close the last trading session at $165.69.
UPS’ strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating equates to a Buy in our rating system. It has an A grade for Quality and a B for Stability and Sentiment.
It is ranked #5 out of 17 stocks in the A-rated Air Freight & Shipping Services industry. Click here for the additional POWR Ratings for Growth, Momentum, and Value for UPS.
VZ shares were trading at $37.20 per share on Monday afternoon, down $0.04 (-0.11%). Year-to-date, VZ has declined -24.49%, versus a -19.02% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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