While the S&P has gained 8% year-to-date and the NASDAQ Composite has gained 25.2%, the rising chance for another rate hike and heightened recessionary fears are shaking investors’ confidence. As a result, the near-term market outlook remains cloudy.
Therefore, I present momentum stocks Taro Pharmaceutical Industries Ltd. (TARO), Tennant Company (TNC), and Carrols Restaurant Group, Inc. (TAST), which could be solid buys now. These stocks are currently trading above their 50-day and 200-day moving averages, despite the market volatility.
The US economy continues to thrive with robust job growth and low unemployment as Job openings unexpectedly rose in April, reaching 10.10 million, indicating a strong labor market. While markets initially anticipated a pause in rate hikes, stronger economic indicators and higher inflation have led to speculation of further rate increases.
In addition, according to results recently provided by the CME FedWatch Tool, Federal Reserve policymakers are expected to hike the target range for the federal funds rate at their upcoming meeting. The members of the Federal Open Market Committee are 70.5% likely to opt for a 25 basis-point increase in the benchmark rate.
Furthermore, the Institute of International Finance (IIF) recently warned that the US banking sector's significant slowdown in lending following the failure of Silicon Valley Bank could signal a potential hard landing for the world's largest economy.
Take a look at the stocks mentioned above:
Taro Pharmaceutical Industries Ltd. (TARO)
Based in Haifa, Israel, TARO is a science-based pharmaceutical company that develops, manufactures, and markets prescription and over-the-counter pharmaceutical products in the United States, Canada, Israel, and internationally.
TARO’s trailing-12-month EBITDA margin of 8.70% is 298.7% higher than the 2.18% industry average.
During the fiscal fourth quarter ended March 31, 2023, TARO net sales increased 7.6% year-over-year to $146.59 million. Net income attributable to TARO amounted to $6.91 million and net income per ordinary share attributable to TARO amounted to $0.18. Also, its operating income amounted to $9.30 million.
Shares of TARO have gained 50.3% over the past month and 31.5% year-to-date to close the last trading session at $38.18. TARO is currently trading above its 50-day and 200-day moving averages of $27 and $29.52, indicating an uptrend.
TARO’s POWR Ratings reflect its solid fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and a B in Momentum and Stability. It is ranked #38 out of 168 stocks in the Medical - Pharmaceuticals industry.
Beyond what is stated above, we’ve also rated TARO for Growth, Sentiment, and Quality. Get all TARO ratings here.
Tennant Company (TNC)
TNC designs, manufactures, and markets floor cleaning equipment in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company offers a suite of products, including floor maintenance and cleaning equipment, detergent-free, and other sustainable cleaning technologies.
On April 25, 2023, TNC announced two new, compact additions to its ride-on sweeper portfolio: the S680 and S880 sweepers.
The S680 and S880 are simple to use and highly maneuverable compact, battery-operated ride-on sweepers designed to clean in tight spaces and large openings within the light- to medium-duty applications. Both offer high productivity while taking up less space than previous TNC ride-on sweeper models.
TNC’s trailing-12-month EBITDA margin of 13.71% is 2.9% higher than the 13.32% industry average. Its trailing-12-month gross profit margin of 39.28% is 30.9% higher than the 30.02% industry average.
On April 25, TNC declared a quarterly dividend of $0.27, payable on June 15, 2023. The company pays an annual dividend of $1.06, which translates to a yield of 1.45% at the current price level. It has a four-year average dividend yield of 1.34%.
TNC's net sales increased 18.5% year-over-year to $305.8 million in the fiscal first quarter that ended March 31, 2023. Its net income increased 135.9% year-over-year to $24.3 million. Also, its net income per share increased 136.4% year-over-year to $1.30.
Street expects TNC’s revenue for the fiscal second quarter ending June 2023 to increase 4.1% year-over-year to $291.67 million. Its EPS is expected to increase 25.7% year-over-year to $1.16 for the same quarter. Also, it has surpassed EPS estimates in three of the trailing four quarters, which is remarkable.
The stock has gained 21% over the past nine months and 3.7% over the past three months to close the last trading session at $74.19. TNC is currently trading above its 50-day and 200-day moving averages of $71.68 and $65.78.
TNC’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
TNC has a B grade for Growth, Quality, Value, Momentum, and Sentiment. It is ranked #2 out of 78 stocks in the A-rated Industrial - Machinery industry.
Click here to see the additional POWR Ratings for TNC (Stability).
Carrols Restaurant Group, Inc. (TAST)
TAST operates as a restaurant company in the United States. The company operates as Burger King and Popeyes franchisee.
TAST’s trailing-12-month asset turnover ratio of 1.09x is 8.6% higher than the 1.01x industry average.
TAST’s restaurant sales increased 11.4% year-over-year to $445.16 million in the fiscal first quarter, which ended April 2, 2023. Its adjusted net income came in at $7 thousand, compared to a loss of $17.07 million in the previous-year quarter. Also, adjusted EBITDA increased 613.7% year-over-year to $30.69 million.
Analysts expect TAST’s revenue for the fiscal second quarter ending June 2023 to increase 7.2% year-over-year to $473.84 million. Its EPS is expected to be $0.02 for the same quarter. Also, it has surpassed revenue estimates in each of the trailing four quarters.
The stock has gained 322.8% year-to-date and 44.1% over the past month to close the last trading session at $5.75. TAST is currently trading above its 50-day and 200-day moving averages of $3.86 and $2.33, indicating an uptrend.
TAST’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
TAST also has an A grade for Sentiment and a B in Growth and Momentum. It is ranked #18 out of 45 stocks in the A-rated Restaurants industry.
To access additional ratings for TAST’s Quality, Stability, and Value, click here.
What To Do Next?
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TARO shares were trading at $38.80 per share on Friday morning, up $0.62 (+1.62%). Year-to-date, TARO has gained 33.61%, versus a 11.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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