November’s softer-than-expected inflation report lifted investors’ sentiment, and they grew more optimistic about a year-end rally. The moderating inflation elicited the Fed to stick to the word of a slower pace of rate hike, as it announced a 50-basis-point rate increase this week.
Fundstrat’s Tom Lee had earlier reiterated that softening inflation could bring “fireworks” in the stock market through the last five weeks of the year. He also predicts the S&P 500 to reach as high as 4,500 by year-end.
The market has declined significantly this year. However, this provides investors with a golden opportunity because many quality stocks are now trading at attractive valuations. Fundamentally-sound companies with solid growth prospects could generate significant returns in the near term.
Given this backdrop, investing in fundamentally strong yet cheap stocks ICL Group Ltd (ICL), Overseas Shipholding Group, Inc. (OSG), and ARC Document Solutions, Inc. (ARC) could be wise.
ICL Group Ltd (ICL)
Headquartered in Tel Aviv, Israel, ICL and its subsidiaries are engaged in the fertilizer and specialty chemical sectors. The company operates in three segments: Fertilizers, Industrial Products, and Performance Products, and executes its sale through marketing companies, agents, and distributors.
On October 21, 2022, ICL launched ICLeaf, a revolutionary diagnostics tool that provides farmers with a personal prescription for maximizing yield. The tool measures ten different elements in a leaf sample and then delivers accurate, real-time feedback and a recommendation regarding nutrient use.
With this new launch, the company expands its digital suite in India, which is expected to benefit farmers to improve crop yields and advance sustainable agriculture.
ICL’s net sales increased 40.7% year-over-year to $2.52 billion in the third quarter ended September 30, 2022. Its operating income grew 191.3% from the year-ago value to $935 million, while its adjusted net income improved 192.1% year-over-year to $628 million. The company’s adjusted EBITDA came in at $1.05 billion, up 139.5% year-over-year. Also, its EPS increased 188.2% from its year-ago value to $0.44.
The stock is relatively undervalued compared to its peers. In terms of forward non-GAAP P/E, ICL is currently trading at 3.98x, 68% lower than the industry average of 12.41x. Its forward EV/EBIT multiple of 3.39 is 66.8% lower than the industry average of 10.23. In addition, its forward EV/EBITDA ratio of 2.99 is 58% lower than the industry average of 7.13.
The consensus EPS estimate of $0.31 for the fourth quarter ending December 31, 2022, represents an 18.6% improvement year-over-year. The consensus revenue estimate of $2.18 billion for the current quarter indicates a 6.7% increase from the same period last year. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has lost 11.6% to close the last trading session at $7.37.
ICL’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. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Value and a B for Growth and Quality. Within the Agriculture industry, it is ranked first out of 28 stocks. Click here to see the other ratings of ICL for Momentum, Stability, and Sentiment.
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 November 15, 2022, the company’s Board of Directors announced to purchase of $5 million shares of the Company’s common stock from Cyrus Capital at a price of $2.86 per share for a total of $14,300,000.
Sam Norton, OSG’s President and CEO stated, “Renewed confidence in the health of OSG’s businesses and the opportunity to repurchase, in a single transaction, five million shares of OSG stock coalesced nicely to result in the transaction announced today. The price paid in this share purchase equates to an enterprise value of roughly 4.5 times expected 2022 adjusted EBITDA, an implied valuation which we consider to be very attractive.”
OSG’s shipping revenues increased 30.9% year-over-year for the third quarter that ended September 30, 2022, to $123.06 million. Moreover, its net income came in at $13.25 million, compared to a net loss of $16.01 million in the year-ago period. Moreover, 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 currently trading at 1.60x, 16.1% lower than the industry average of 1.91x. Its trailing-12-month Price/Sales multiple of 0.55x is 57.7% lower than the industry average of 1.30x. In addition, the stock’s trailing-12-month Price/Book ratio of 0.67x compares to the industry average of 1.85x.
The stock has gained 65.7 over the past year and 46.3% year-to-date to close the last trading session at $2.75.
OSG’s POWR Ratings reflect its promising outlook. 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 Quality and a B for Growth, Value, and Sentiment. In the 46-stock A-rated Shipping industry, it is ranked first. Click here to see OSG’s rating for Stability.
ARC Document Solutions, Inc. (ARC)
ARC provides digital printing and document-related services to customers across industries. The company also resells printing, imaging, and related equipment primarily to architectural, engineering, and construction firms and provides ancillary services.
It serves local restaurant owners, construction subcontractors, international retailers, regional energy companies, school districts, retail, technology, energy, education, hospitality, and public utilities.
For the third quarter ended September 30, 2022, ARC’s net sales increased 1% year-over-year to $73.14 million. Its income from operations grew 16.2% from the year-ago period to $5.72 million. ARC’s net income came in at $3.71 million, representing an 18.1% year-over-year increase, while its adjusted EPS increased 12.5% year-over-year to $0.09.
In terms of trailing-12-month P/E, ARC is currently trading at 10.22x, 45.1% lower than the industry average of 18.61x. Its trailing-12-month EV/Sales multiple of 0.60x is 63.7% lower than the industry average of 1.67x.
In addition, the stock’s trailing-12-month EV/EBIT and EV/EBITDA ratios of 9.29x and 4.42x compare with industry averages of 16.52x and 11.87x, respectively.
The stock has gained marginally over the past six months to close the last trading session at $2.76.
ARC’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It also has an A grade for Value, Sentiment, and Quality. It is ranked first among 43 stocks in the B-rated Outsourcing – Business Services industry. Click here to see the additional ratings of ARC for Growth, Momentum, and Stability.
ICL shares were trading at $7.29 per share on Friday afternoon, down $0.08 (-1.09%). Year-to-date, ICL has declined -18.72%, versus a -18.66% 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.
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