All eyes are on the Central bank as it’s widely expected to raise rates by 75 basis points on Wednesday for the fourth consecutive time. Meanwhile, Wall Street ended the last month on a positive note. The Dow registered its biggest monthly advance since January 1976 as investors rotated out of technology and hedged hopes on stalwarts like banks.
Additionally, solid profits and economic data are raising hopes for a “pivot” by the Federal Reserve in the near term. According to Michael Wilson, Morgan Stanley strategist, the Federal Reserve’s campaign to raise interest rates is approaching an end. Wilson wrote in a note on Monday. “This week’s Fed meeting is critical for the rally to continue, pause or even end completely.”
Given this backdrop, fundamentally strong growth stocks McKesson Corporation (MCK), Valero Energy Corporation (VLO), and TravelCenters of America Inc. (TA) might be ideal investments. These stocks have a Growth grade of A or B in our POWR Ratings system.
McKesson Corporation (MCK)
MCK is an international healthcare services provider. It operates through four segments: U.S. Pharmaceutical; International; Medical-Surgical Solutions; and Prescription Technology Solutions (RxTS).
On September 29, MCK announced its agreement to extend its long-standing partnership with CVS Health Corporation (CVS) to distribute pharmaceuticals to mail-order and specialty pharmacies, retail pharmacies, and distribution centers through June 2027. This should continue to be beneficial for the company.
On September 19, MCK signed a definitive agreement to acquire Rx Savings Solutions, a prescription price transparency and benefits insight company offering affordable and adherence solutions to health plans and employers for $875 million. MCK expects to use the combined medication access, affordability, and adherence services as a foundation to build new outcomes management programs for biopharma.
On October 27, MCK declared a regular dividend of 54 cents per share of common stock. The dividend will be payable on January 3, 2023. The company has a record of 14 years of consecutive dividend growth. This reflects the good liquidity of the company.
MCK’s revenue has grown at a CAGR of 7.3% over the past three years and a CAGR of 6.1% over the past five years.
In the fiscal first quarter ended June 30, 2022, MCK’s total revenues increased 7.2% year-over-year to $67.15 billion. Its net income attributable to MCK increased 58% from the year-ago value to $768 million. Additionally, the company reported an adjusted EPS of $5.83 for the quarter, registering an increase of 4.9% year-over-year.
The consensus revenue estimate of $67.96 billion for the fourth fiscal quarter ending March 2023 indicates an improvement of 2.8% year-over-year. The consensus EPS estimate of $6.37 represents a 9.3% increase from the prior-year quarter. Additionally, MCK has topped consensus EPS estimates in three out of the trailing four quarters, which is impressive.
The stock has gained 87.3% over the past year to close its last trading session at $389.37. It has gained 56.6% year-to-date.
MCK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is rated an A in Growth and a B in Value, Stability, and Sentiment. Within the Medical - Services industry, it is ranked #1 of 78 stocks.
Click here to see additional POWR Ratings for Momentum and Quality for MCK.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products globally. The company operates through three segments: Refining; Renewable Diesel; and Ethanol.
On September 26, VLO announced that it had reduced its debt by approximately $1.25 billion. This transaction, combined with debt reduction and refinancing transactions completed earlier, collectively reduced VLO’s debt by approximately $3.60 billion.
On October 26, VLO declared a regular quarterly cash dividend on the common stock of $0.98 per share, payable on December 8, 2022. This reflects on the company’s ability to pay back its shareholders.
VLO’s revenue has grown at a CAGR of 16.8% over the past three years and a CAGR of 14.8% over the past five years.
VLO’s revenue increased 50.6% year-over-year to $44.45 billion in the fiscal third quarter ended September 30. Its adjusted net income attributable to VLO stockholders increased 413% from its year-ago value to $2.80 billion, while its adjusted earnings per common share rose 436.8% year-over-year to $7.14.
VLO’s EPS is estimated to rise 874.4% year-over-year to $27.38 for the current fiscal year that ended December 2022. Similarly, its revenue is expected to increase 58% from the same period last year to $180.03 billion for the current year. Additionally, VLO has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 67.2% year-to-date to close its last trading session at $125.55.
This promising prospect is reflected in VLO’s POWR Ratings. VLO has an overall A rating which translates to a Strong Buy in our proprietary rating system.
VLO is rated an A in Momentum and a B in Growth, Value, and Quality. It is ranked #7 of the 94 stocks in the B-rated Energy – Oil & Gas industry.
To see additional POWR Ratings for Stability and Sentiment for VLO, click here.
TravelCenters of America Inc. (TA)
TA operates travel centers, truck service facilities, and restaurants in the United States and Canada. The company operates travel centers that offer various products and services, operates quick-service restaurants, and travel stores that provide general merchandise.
On October 26, TA announced network expansion and guest experience updates, including the opening of four new travel centers, the planned opening of four additional locations, and the completed enhancements of over 50 travel centers. This might bolster the revenue streams of the company over time.
TA’s revenue has grown at a CAGR of 14.6% over the past three years and a CAGR of 11.6% over the past five years.
In the second quarter ended June 30, TA’s total revenues increased 67.9% year-over-year to $3.08 billion. Its income from operations grew 89.3% year-over-year to $94.23 million. The company’s adjusted net income rose 117% year-over-year to $64.40 million, while its adjusted net income per share came in at $4.34, increasing 108.7% from its prior year quarter value.
Streets expect TA’s revenue for the current fiscal year to be $10.86 billion, indicating a 48% year-over-year growth. The company’s EPS for the same quarter is expected to increase 126.5% from the prior-year value to $9.31. Additionally, TA has an excellent record of surpassing each of the consensus EPS estimates of the trailing four quarters.
TA has gained 67.3% over the past six months to close its last trading session at $63.58. It has gained 52.4% over the past three months.
It is no surprise that TA has an overall A rating, which translates to Strong Buy in our POWR Rating system.
TA has an A grade for Growth and Value and a B for Sentiment and Quality. It is ranked top of the 45 stocks in the Specialty Retailers industry.
Beyond what we’ve stated above, we have also given TA grades for Momentum and Stability. Get all TA ratings here.
MCK shares were trading at $387.68 per share on Tuesday morning, down $1.69 (-0.43%). Year-to-date, MCK has gained 56.68%, versus a -17.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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