Global shares jumped on Friday, while the dollar fell and oil soared as investors decreased their expectations of an aggressive interest rate hike by the Federal Reserve this month, and the U.S. spending data topped expectations. However, investors are still concerned that the global economy is heading for a recession as central banks hurry to combat soaring inflation with sharp interest rate hikes.
Salman Ahmed, global head of macro at Fidelity International, said, "We moved rapidly from a stagflationary set-up to more of a recession-dominated one, and very strong inflation is adding to fears that the Fed will need to do more front-loaded tightening."
While the stock market rose marginally last week, the bounce may be short-lived since inflationary pressures remain strong and a recession appears to be on the horizon. Moreover, continued selling has pushed several high-quality stocks into bargain territory. So, this can be an opportunity to invest in fundamentally sound stocks that are trading at lower valuations.
Despite possessing solid fundamentals Adam Resources & Energy Inc. (AE) and AutoNation Inc. (AN) are currently trading at a discount to their peers. In addition, they have also rated a Strong Buy in our proprietary POWR Ratings system. So, we think these stocks could be a great addition to your watchlist now.
Adam Resources & Energy Inc. (AE)
AE, via its subsidiaries, principally operates in the marketing, transportation, terminalling, and storage of crude oil and natural gas in various U.S. crude oil and natural gas basins.
The company operates through three divisions: Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Crude Oil Storage.
In terms of forward EV/Sales, AE's 0.02x is 98.9% lower than the industry average of 1.70x. In addition, its forward Price/Sales of 0.04x is 96.3% lower than the industry average of 1.19x.
AE's total revenue increased 137.9% from the year-ago value to $774.25 million for the first quarter ended March 31, 2022. Its operating income grew 111.6% year-over-year to $8.15 million. The company's net income surged 116.9% from the prior-year quarter to $6.09 million, while its EPS rose 110.6% year-over-year to $1.39.
Analysts expect the EPS to increase 28.7% year-over-year to $3.54 in fiscal 2022. The consensus revenue estimate of $3.07 billion in fiscal 2022 represents a 51.6% increase from the same period last year. The stock has gained 13.8% over the past year and 12.6% year-to-date.
AE's POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AE has also rated an A for Value and Momentum and a B for Quality. Within the B-rated Energy – Oil & Gas industry, it is ranked #1 of 97 stocks.
Click here to see additional POWR Ratings for Growth, Sentiment, and Stability for AE.
AutoNation Inc. (AN)
AN, through its subsidiaries, operates as an automotive retailer in the United States. The company operates in three segments: Domestic; Import; and Premium Luxury. It provides a variety of automotive products and services, such as new and used automobiles and components and services, including automotive repair and maintenance, wholesale parts, and collision services.
In May, AN announced that 119 AutoNation stores had been accredited in the J.D. Power 2022 Dealer of Excellence ProgramSM, which recognizes a select number of vehicle dealerships across the United States that deliver great customer service.
In terms of forward Price/Sales, AN's 0.24x is 71.3% lower than the industry average of 0.84x. In addition, its forward non-GAAP P/E of 4.85x is 56.8% lower than the industry average of 11.24x.
For the first quarter ended March 31, 2022, AN's total revenue increased 14.4% from the year-ago value to $6.75 billion. Its operating income grew 54.1% year-over-year to $519 million. The company's net income surged 51.3% from the prior-year quarter to $362.1 million, while its EPS rose 102.8% year-over-year to $5.78.
AN’s EPS is expected to grow at the rate of 24.7% per annum over the next five years. The consensus revenue estimate of $27.9 billion in fiscal 2022 represents an 8% increase from the same period last year. The stock has gained 10.7% over the past year and 12.8% over the past three months.
It is no surprise that AN has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value and a B for Growth and Quality. In the B-rated Auto Dealers & Rentals industry, it is ranked #4 of 24 stocks.
Beyond the POWR Rating grades I have just highlighted, you can view the AN ratings for Momentum, Stability, and Sentiment.
AE shares were unchanged in premarket trading Monday. Year-to-date, AE has gained 15.48%, versus a -17.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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