Investor sentiment has been significantly affected due to the Fed’s monetary tightening and the recent bank collapses. However, a down market provides attractive opportunities to invest in undervalued stocks, whose prices tend to trend back upward in the near future.
Thus, we look into quality low P/E stocks Pfizer Inc. (PFE), Chevron Corporation (CVX), and A&T Inc. (T), which seem to be gearing up for a rebound this year.
As widely anticipated, the Federal Reserve enacted a quarter percentage point interest rate hike last month to control stubborn inflation while expressing caution about the recent bank crisis. The Fed’s move marked its ninth consecutive rate increase since March 2022, lifting its benchmark federal funds rate to a range between 4.75% and 5%, the highest level since 2007.
Fed Chair Jerome Powell also indicated that rate hikes are nearing an end. Moreover, the Labor Department this Tuesday reported that available positions totaled 9.93 million in February, a decline of 632,000 from January’s downwardly revised number. It was the first time job openings fell below 10 million since May 2021, while Wall Street estimated 10.4 million.
“The Fed could consider pausing rate hikes at the next meeting but only if the upcoming employment report shows signs of material weakness and the March [consumer price index] report reveals lower inflation,” said Jeffrey Roach, chief economist at LPL Financial.
After the weaker job openings report suggesting a cooling labor market, investors’ attention turns to the March jobs report due tomorrow. According to data from Trading Economics, the economy is expected to add 238,000 jobs in March, and the unemployment rate is set to hold steady at 3.6%.
Anticipated weakness in a slew of upcoming economic data would provide more evidence of slowing growth, thereby reinforcing hopes for a less-hawkish stance by the Fed. Relatively easy monetary policies can translate into a reversal rally for stocks in the second half of this year. Thus, it could be an opportune time for investors to accumulate quality stocks currently trading at attractive valuations.
Let’s take a closer look at the fundamentals of the featured stocks:
Pfizer Inc. (PFE)
PFE 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. It serves wholesalers, retailers, hospitals, government agencies, and disease control and prevention centers.
On March 10, 2023, PFE announced that the U.S. Food and Drug Administration (FDA) had approved ZAVZPRET™, the first and only calcitonin gene-related peptide (CGRP) receptor antagonist nasal spray for the acute treatment of migraine in adults. This FDA approval would expand the company’s migraine portfolio, boosting its growth and profitability.
On February 21, PFE announced that the FDA had accepted a 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.
In terms of forward non-GAAP P/E, PFE is trading at 12.01x, which is 39.3% lower than the industry average of 19.78x. Likewise, the stock’s forward EV/EBITDA of 9.75x is 25.1% lower than the 13.03x industry average. Also, its forward Price/Sales of 3.35x compares to the industry average of 4.07x.
For the fourth quarter that ended December 31, 2022, PFE’s revenues increased 1.9% year-over-year to $24.29 billion. 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 PFE’s EPS to increase 15.6% year-over-year to $3.94 for the fiscal year (ending December 2024). The company’s revenue is expected to grow 3.6% from the previous year to $71.58 billion for the same period. Moreover, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in each of the trailing four quarters.
Although it is down 18.9% over the past year, the stock has gained 2.7% over the past five days to close the last trading session at $41.55.
PFE’s POWR Ratings reflect its strong fundamentals. 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 #25 in the 164-stock Medical – Pharmaceuticals industry.
Beyond what we stated above, we also have PFE’s ratings for Growth, Momentum, Stability, and Sentiment. Get all PFE ratings here.
Chevron Corporation (CVX)
CVX engages in integrated energy and chemicals operations internationally. It operates through two segments: Upstream and Downstream. The company is involved in exploring, producing, and transporting crude oil and natural gas, liquefaction and regasification associated with liquefied natural gas, and refining oil into petroleum products.
On February 27, CVX, through its subsidiary Chevron Shipping Company LLC, entered into an agreement with Sembcorp Marine Repairs & Upgrades Pte. Ltd, a wholly-owned subsidiary of Sembcorp Marine Ltd., to reduce the carbon intensity of their LNG fleet operations.
CVX is focused on continuing its disciplined capital investment in its LNG fleet. And with this agreement, the company aims to lower the carbon footprint of LNG transportation by installing new technologies, including a reliquefication system, hull air lubrication, and a new gas compressor.
In January, CVX raised its quarterly dividend by an additional 6% to $1.51 per share, putting the company on track to increase its annual per-share dividend for the 36th consecutive year. The company pays a $6.04 per share dividend annually, which translates to a 3.57% yield on the current price level.
The company’s dividend payments have grown at a 5.8% CAGR over the past five years, and its four-year average dividend yield is 4.53%.
In terms of trailing 12-month EV/Sales, CVX is trading at 1.36x, 18.2% lower than the industry average of 1.67x. In addition, the stock’s forward EV/EBITDA multiple of 5.15 is 6% lower than the industry average of 5.47. Its forward non-GAAP P/E multiple of 11.56 is 91.9% lower than the five-year industry average of 143.09.
CVX’s revenues and other income increased 17.3% year-over-year to $56.47 billion in the fourth quarter that ended December 31, 2022. Net income attributable to CVX grew 25.7% from the prior-year period to $6.35 billion. Moreover, the company’s net income per share of common stock was $3.33, up 26.6% year-over-year.
Analysts expect CVX’s EPS to increase 3.8% year-over-year to $3.49 billion for the first quarter that ended March 2023. Also, the company surpassed the consensus revenue estimates in all four trailing quarters.
It is down 5.4% year-to-date. However, over the past year, shares of CVX have gained 4% to close the last trading session at $169.88.
CVX’s POWR Ratings reflect a promising outlook. The stock has an A grade for Momentum and a B for Quality.
Within the Energy-Oil & Gas industry, it is ranked #55 out of 91 stocks. Click here to access the additional POWR Ratings for Growth, Stability, and Sentiment for CVX.
A&T Inc. (T)
T provides telecommunications and technology services globally. The company operates through two segments, including Communications and Latin America.
On March 22, it was reported that T had hit significant network milestones in expanding 5G and Fiber to connect rural, urban, and tribal communities in the United States. Nationwide coverage surpassed 2.91 million square miles. The company’s tribal land coverage also increased by more than 40% in the last two years. These impressive numbers reflect T’s strong business momentum.
On February 15, T and Frontier signed an agreement allowing T to deploy wireless infrastructure in Frontier facilities. Frontier’s fiber infrastructure will enable T to add fiber connectivity to its wireless infrastructure in areas it doesn’t currently own. This collaboration might improve the resiliency, reliability, and speed of the wireless service that T offers to its customers.
Also, on December 23, 2022, T and BlackRock Alternatives, through a fund managed by its Diversified Infrastructure business, announced a definitive agreement to form a joint venture, Gigapower, LLC, to operate a commercial fiber platform. Gigapower would serve customers outside T’s 21-state wireline service.
T’s CEO John Stankey said, “With this joint venture, more customers and communities outside of our traditional service areas will receive the social and economic benefits of the world’s most durable and capable technology to access all the internet has to offer.”
T’s forward non-GAAP P/E of 8.02x is 49% lower than the 15.74x industry average. Its forward Price/Sales of 1.14x is 7% lower than the 1.23x industry average. Also, the stock’s 12.72x forward EV/EBIT is 20.1% lower than the 15.93x industry average.
T’s total operating revenues increased 0.8% year-over-year to $31.34 billion for the fourth quarter that ended December 31, 2022. Its adjusted EBITDA increased 7.9% year-over-year to $10.23 billion. The company’s adjusted operating income rose 12.9% from the prior-year period to $5.65 billion. In addition, its adjusted EPS came in at $0.61, up 8.9% year-over-year.
Street expects T’s EPS and revenue for the fiscal year (ending December 2024) to increase 2.6% and 1.2% year-over-year to $2.51 and $124.08 billion, respectively. Furthermore, the company topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 24.8% over the past six months and 10.2% over the past year to close the last trading session at $19.88. However, it is trading about 8% lower than its 52-week high of $21.53.
T is ranked #8 out of 19 stocks in the Telecom-Domestic industry. To access all T ratings, click here.
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PFE shares were trading at $41.50 per share on Thursday morning, down $0.05 (-0.12%). Year-to-date, PFE has declined -18.27%, versus a 6.73% 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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