Federal Reserve officials are hinting at multiple 50 basis points interest rate increases in the coming months to tame the red-hot inflation. However, most investors and analysts believe that the Fed’s tighter monetary policy could push the economy into a recession. JPMorgan Chase CEO Jamie Dimon recently warned investors of an economic hurricane. These macroeconomic headwinds are expected to keep the stock markets volatile in the near term.
The stock market gained slightly last week. But the rally was short-lived as indexes retreated yesterday amid escalating interest-rate-increase fears. Continued selling has driven many quality stocks into bargain territory. So, now could be an opportune time to bet on fundamentally solid stocks that are trading at relatively cheaper valuations. Investors’ interest in value stocks is evident in the iShares Edge MSCI USA Value Factor ETF’s (VLUE) 1.7% returns over the past month.
Given these factors, we think betting on quality value stocks Olympic Steel, Inc. (ZEUS), LyondellBasell Industries N.V. (LYB), and American International Group, Inc. (AIG) could be wise. These stocks are trading below their intrinsic values.
Olympic Steel, Inc. (ZEUS)
ZEUS in Bedford Heights, Ohio, is a metal service center company. It processes, distributes, and sells metal products in the U.S. and internationally. The company operates through three segments: Carbon Flat Products; Specialty Metals Flat Products; and Tubular and Pipe Products. It distributes processed carbon and coated flat-rolled sheets, coil and plate products, processed aluminum and stainless sheets, flat bar products, prime tin mill products, and metal tubing products.
On February 18, ZEUS’s board of directors declared a regular quarterly cash dividend of $0.09 per share. “As indicated in our earnings releases for the first three quarters of 2021, this has been an extraordinary year with record profitability for Olympic Steel. We are pleased to share that success with our shareholders by declaring a quarterly dividend that has been increased from $0.02 per share to $0.09 per share,” said Richard T. Marabito, CEO of ZEUS.
ZEUS' net sales increased 50.4% year-over-year to $696.33 million in its fiscal 2022 first quarter, ended March 31, 2022. Its operating income improved 68.2% year-over-year to $53.12 million. Its adjusted EBITDA rose 48.1% year-over-year to $56.02 million. And the company’s net income and net income per share came in at $37.30 million and $3.23, respectively, registering a rise of 69.5% and 69.1% from the prior-year period.
In terms of forward non-GAAP P/E, ZEUS is currently trading at 4.44x, which is 61.1% lower than the 11.43x industry average. Its 0.16 forward Price/Sales multiple is 87.5% lower than the 1.27x industry average.
Analysts expect ZEUS’s revenue for its fiscal 2022 second quarter, ending June 30, 2022, to be $655.10 million, indicating a 17.8% increase year-over-year. Shares of ZEUS have gained 65.5% in price over the past six months and closed yesterday’s trading session at $34.50. Its year-to-date gain translates to 45.6%
ZEUS' POWR Ratings reflect this promising outlook. It has an overall B grade, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ZEUS has a grade of B for Sentiment, Value, and Momentum. Within the A-rated Steel industry, it is ranked #21 of 32 stocks.
To see additional POWR Ratings (Stability, Growth, and Quality) for ZEUS, click here.
LyondellBasell Industries N.V. (LYB)
LYB operates as a chemical company in the U.S., Germany, Mexico, Italy, Poland, France, Japan, China, the Netherlands, and internationally. The company operates through six segments: Olefins and Polyolefins Americas; Olefins and Polyolefins; Europe, Asia, International; Intermediates and Derivatives; Advanced Polymer Solutions; Refining; and Technology.
On May 27, LYB’s board of directors declared a special dividend of $5.20 per share and a quarterly dividend of $1.19 per share, which will be paid on June 13, 2022. This year marks the 12th consecutive year of regular dividend growth.
The quarterly dividend represents a 5% increase from the company’s first-quarter 2022 dividend. Its management team is confident that the strong demand for its products and growth from investments in its asset base might provide significant cash generation.
In its fiscal 2022 first quarter, ended March 31, 2022, LYB's sales and other operating revenues grew 44.9% year-over-year to $189.67 billion. Its EBITDA improved 27.4% from its year-ago value to $2.02 billion. The company’s net income and earnings per share amounted to $1.32 billion and $4, respectively, registering a rise of 23.4% and 25.8% year-over-year.
In terms of forward EV/Sales, LYB is currently trading at 6.95x, which is 39.2% lower than the 11.43x industry average. Its 0.93 forward EV/Sales multiple is 38.5% lower than the 1.52x industry average.
Analysts expect LYB's revenue for the fiscal 2022 second quarter, ending June 30, 2022, to come in at $13.68 billion, representing a rise of 18.4% from the same period in 2021. It is no surprise that the company has topped the consensus revenue estimates in each of the trailing four quarters. Also, the Street expects the company's EPS for the fourth quarter, ending Dec. 31, 2022, to increase 75.4% year-over-year to $3.86.
The stock has increased 6.1% in price over the past month and 35.2% over the past six months to close yesterday’s trading session at $114.31.
LYB's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B grade, which translates to Buy in our proprietary rating system.
LYB has a grade of A for Value. Within the A-rated Chemicals industry, it is ranked #28 of 90 stocks.
To see additional POWR Ratings (Growth, Momentum, Stability, Quality, and Sentiment) for LYB, click here.
American International Group, Inc. (AIG)
AIG in New York City provides insurance products for commercial, institutional, and individual customers in North America and internationally. The company operates through two segments: General Insurance; and Life and Retirement. Its General Insurance segment offers general liability and crisis management insurance products; industrial, and energy-related property insurance; and portfolio solutions. Its Life and Retirement segment offers index and fixed annuities, retail mutual funds, financial planning, advisory services, and universal life insurance.
AIG's adjusted pre-tax income increased 20.5% year-over-year to $1.51 billion in its fiscal 2022 first quarter, ended March 31, 2022. The company’s adjusted after-tax income attributable to AIG common shareholders rose 16.4% year-over-year to $1.07 billion. And its adjusted after-tax income per share attributable to AIG common shareholders improved 23.8% from its year-ago value to $1.30.
In terms of forward EV/Sales, AIG is currently trading at 1.63x, which is 42.3% lower than the 2.83x industry average. Its 0.98 forward Price/Sales multiple is 67% lower than the 2.96x industry average.
The $46.67 billion consensus revenue estimate for its fiscal year 2023, ending Dec. 31, 2023, represents a 5.9% improvement from the previous year. Analysts expect the company’s EPS for the next year to be $6.38, representing a 22.7% increase year-over-year. It has surpassed the consensus revenue estimates in three of the trailing four quarters, and the consensus EPS estimates in each of the trailing four quarters.
The stock has improved 11.8% in price over the past six months and 8% over the past year and closed yesterday’s trading session at $57.84.
AIG's POWR Ratings reflect a strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
AIG has a B grade for Momentum and Growth. It is ranked #12 of 55 stocks in the Insurance - Property & Casualty industry.
Click here to see AIG's POWR Ratings for Sentiment, Value, Stability, and Quality.
What To Do Next?
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ZEUS shares were trading at $35.56 per share on Thursday afternoon, up $1.06 (+3.07%). Year-to-date, ZEUS has gained 52.19%, versus a -12.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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