The stock market has witnessed significant volatility of late on concerns over the prospect of progressive rate hikes and other macro uncertainties. However, this has led several fundamentally strong stocks to trade at affordable prices. Thus, I wanted to bring to your notice the upside potential of quality stocks Pfizer Inc. (PFE), McDonald’s Corporation (MCD), and United Microelectronics Corporation (UMC), which are trading at discounts to their peers.
Inflation rose 0.5% month-over-month in January, the highest in three months. A tight labor market contributed to upward pressures on wages and prices. On the other hand, despite rising inflationary pressures, retail sales surged by 3% in January, the biggest increase since March 2021. Amid a recent string of hot economic data, Fed warned of more interest rate hikes.
Bill Adams, the chief economist for Comerica Bank, said, “The monthly reports on industrial production, retail sales, and jobs were generally better than expected and point to a pickup in economic activity in early 2023 after a soft patch in late 2022. The Fed will read recent activity reports as supporting plans for additional interest rate increases in the first half of this year.”
Moreover, Goldman Sachs and Bank of America expect the Fed to increase rates three more times this year. Both banks forecasted Fed fund rates at a range of 5.25%-5.5%. While the market is expected to remain volatile, there is no reason to wait further to scoop up quality stocks PFE, MCD, and UMC at their current valuations.
Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, including immunology, oncology, cardiology, neurology, and endocrinology.
On February 21, 2023, PFE announced that the U.S. Food and Drug Administration (FDA) had accepted Biologics License Application (BLA) for its respiratory syncytial virus (RSV) vaccine candidate PF-06928316 or RSVpreF.
“If approved, RSVpreF would help protect infants at their first breath from the devastating effects of this infectious disease, which though well-known, has been particularly evident throughout this RSV season,” said Annaliesa Anderson, Senior Vice President, and Chief Scientific Officer, Vaccine Research & Development, Pfizer.
On February 16, PFE announced positive results from the Phase 3 TALAPRO-2 study of TALZENNA, an oral poly ADP-ribose polymerase inhibitor, in combination with XTANDI, demonstrating a statistically significant and clinically meaningful improvement in radiographic progression-free survival.
In addition, the FDA has also granted a Priority Review for Pfizer’s supplemental new drug application for TALZENNA in combination with XTANDI. Such developments in the company’s product line should boost its growth and profitability.
In terms of forward non-GAAP P/E, PFE is currently trading at 11.95x, which is 39.1% lower than the industry average of 19.61x. Likewise, the stock’s forward EV/EBITDA of 8.31x is 37.8% lower than the 13.36x industry average. Also, its forward Price/Sales of 3.37x compared with the industry average of 4.42x.
For the fiscal fourth quarter that ended December 31, 2022, PFE’s revenues increased 1.9% year-over-year to $24.29 billion, reflecting 13% operational growth. Its income from continuing operations was $5 billion, up 39.7% year-over-year. The company’s adjusted net income rose 44.2% year-over-year to $6.55 billion, while its adjusted EPS grew 44.3% year-over-year to $1.14.
Analysts expect the company’s EPS to increase 11.9% year-over-year to $3.97 for the next fiscal year (ending December 2024). Moreover, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in each of the trailing four quarters. PFE declined 5.6% over the past month to close the last trading session at $42.38.
PFE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates 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.
PFE has an A grade for Value and a B for Quality. The stock is ranked #21 in the 173-stock Medical – Pharmaceuticals industry.
To access additional PFE ratings for Growth, Momentum, Stability, and Sentiment, click here.
McDonald’s Corporation (MCD)
Leading foodservice chain MCD operates and franchises its restaurants in the United States and internationally. The company’s segments include the United States (U.S.); International Operated Markets (IOM); and International Developmental Licensed Markets & Corporate (IDL).
On January 31, 2023, MCD’s President and Chief Executive Officer, Chris Kempczinski, said, “While we expect short-term inflationary pressures to continue in 2023, we remain highly confident in Accelerating the Arches, which now includes a greater emphasis on new restaurant openings. The recently announced Accelerating the Organization initiative will complement this strategy to enable the McDonald's System to be faster, more innovative, and more efficient.”
MCD’s revenues from franchised restaurants increased 7.5% year-over-year to $3.65 billion in the fourth quarter that ended December 31, 2022. Its operating income grew 7.7% from the prior-year period to $2.58 billion. Moreover, the company’s net income and EPS increased 16.1% and 18.8% year-over-year to $1.90 billion and $2.59, respectively.
Analysts expect MCD’s revenue to increase 5.3% year-over-year to $24.40 billion in 2023. The company’s EPS for the current year is expected to grow 4.9% year-over-year to $10.59. Also, it has surpassed the consensus EPS estimates in all four trailing quarters.
The consensus revenue and EPS estimate of $25.95 billion and $11.68 for fiscal 2024 indicate an improvement of 6.3% and 10.3% year-over-year, respectively. Over the past year, the stock has gained 6.3% to close the last trading session at $268.64.
MCD’s POWR Ratings reflect a promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
MCD has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Restaurants industry, it is ranked #7 out of 45 stocks.
Click here to access the additional POWR Ratings for Growth, Value, and Momentum for MCD.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a global semiconductor foundry. The company operates through two segments: Wafer Fabrication and New Business. It offers integrated circuit (IC) production for applications spanning every sector of the electronics industry.
On February 1, 2023, UMC and Cadence Design Systems, Inc. (CDNS) announced that the Cadence® 3D-IC reference flow, featuring the Integrity™ 3D-IC Platform, had been certified for UMC’s chip stacking technologies.
Osbert Cheng, vice president of device technology development & design support at UMC, said, “Cost-effectiveness and design reliability are the pillars of UMC’s hybrid bonding technologies, and this collaboration with Cadence provides mutual customers with both, helping them reap the benefits of 3D structures while also accelerating the time needed to complete their integrated designs.”
UMC’s operating revenues increased 14.8% year-over-year to NT$67.84 billion ($2.22 billion) for the fourth quarter that ended December 31, 2022. Its gross profit grew 26.1% year-over-year to NT$29.12 billion ($949.82 million). The company’s operating income was NT$23.64 billion ($774.26 million), up 34.2% year-over-year.
Furthermore, the company’s net income increased 19.6% year-over-year to NT$19.07 billion ($624.59 million), while its EPS came in at NT$1.54, an increase of 18.5% year-over-year.
In terms of forward non-GAAP P/E, UMC is trading at 10.25x, 48.5% lower than the industry average of 19.91x. Its forward EV/Sales multiple of 2.09 is 25.9% lower than the industry average of 2.82. In addition, the stock’s forward EV/EBITDA of 4.68x is 62.8% lower than the industry average of 12.59x.
Street expects UMC’s EPS and revenue for the fiscal year (ending December 31, 2024) to increase 22.4% and 11.3% year-over-year to $0.92 and $8.70 billion, respectively. Furthermore, the company has topped the consensus revenue estimates in three of the trailing four quarters.
Shares of UMC have gained 2.2% over the past month and 19.6% over the past six months to close the last trading session at $8.01.
UMC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Value and Momentum. It is ranked #3 out of 92 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to see the additional ratings of UMC (Growth, Stability, and Sentiment).
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PFE shares were unchanged in premarket trading Thursday. Year-to-date, PFE has declined -16.77%, versus a 4.77% 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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