Receding inflation for the sixth consecutive time in December has raised investors’ confidence and the odds of the Fed slowing its pace on its aggressive rate hikes. But the Fed’s recent hawkish comments signaling rate hikes until the target inflation rate is achieved could keep the stock market volatile for the near term.
The Conference Board’s Leading Economic Index fell 1% in December and 4.2% over the six-month period between June and December, signaling a near-term U.S. recession.
However, on the bright side, inflation finally cooling and wage growth slowing down could help the Fed administer a soft landing. Moreover, experts remain optimistic that price stability is possible without raising unemployment and possibly avoiding recession.
Goldman Sachs Research Group shows there is only a 35% chance of a recession and believes the United States could avoid one altogether.
Given this backdrop, it would be wise to add quality stocks, currently trading cheap, Berry Corporation (BRY), China Automotive Systems, Inc. (CAAS), and ARC Document Solutions, Inc. (ARC), to your portfolio to garner significant returns.
Berry Corporation (BRY)
BRY is an independent upstream energy business focused on developing and producing oil reserves in the western United States. Its segments include Development and Production; and Well Servicing and Abandonment.
On November 2, 2022, the company’s board of directors declared a dividend totaling $0.47 per share on its outstanding common stock, paid to shareholders on November 28, 2022. This reflects on BRY’s cash generation ability.
In terms of forward non-GAAP P/E, BRY is trading at 4.78x, 40.4% lower than the industry average of 8.03x. Its forward EV/EBITDA multiple of 2.78 is 48.7% lower than the industry average of 5.42.
The stock’s trailing-12-month gross profit margin of 52.25% is 18.5% higher than the industry average of 44.08%. Its trailing-12-month EBIT margin of 24.84% is 26% higher than the industry average of 19.71%. Also, its trailing-12-month net income margin of 20.07% is 54.2% higher than the industry average of 13.02%.
For the fiscal third quarter that ended September 30, 2022, BRY’s total revenues and other increased 162.5% year-over-year to $376.45 million, and its adjusted EBITDA rose 63.5% year-over-year to $96.98 million. Moreover, the company’s adjusted net income and earnings per share on adjusted net income came in at $45.52 million and $0.55, up 294.5% and 292.9% year-over-year, respectively.
Analysts expect BRY’s revenue to increase 98.3% year-over-year to $186.60 million for the fiscal first quarter ending March 2023. The company’s EPS for the same quarter is expected to be $0.32. Moreover, it surpassed earning consensus in three of the four trailing quarters, which is impressive.
Shares of BRY have gained 13.5% over the past month and 6.6% over the past six months to close the last trading session at $9.10.
BRY’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value and Momentum and a B for Growth. Within the Energy - Oil & Gas industry, it is ranked #4 of 92 stocks.
To see additional POWR Ratings for Stability, Quality, and Sentiment for BRY, click here.
China Automotive Systems, Inc. (CAAS)
Headquartered in Jingzhou, China, CAAS manufactures automotive systems and components through its subsidiaries and sells its products to original equipment manufacturing customers (OEMs).
On December 12, 2022, CAAS announced it had introduced a new series of Electric Power Steering systems for China’s largest EV producer, BYD Company Limited (BYDDF).
Qizhou Wu, CAAS’ CEO, said, “Working with BYD brings out the best of CAAS as our engineering team embraces every opportunity to set new records and raise the bar in new product designs. Now the baton has been passed to our best-in-class production team to meet the high expectations of our customer and deliver the high-quality products to the end market.”
In terms of forward non-GAAP P/E, CAAS is trading at 10.45x, 26.6% lower than the industry average of 14.23x. Its forward EV/EBITDA multiple of 4.24 is 56.5% lower than the industry average of 9.79.
For the fiscal third quarter that ended September 30, CAAS’ net sales increased 26.8% year-over-year to $137.21 million. Its gross profit increased 24.6% year-over-year to $20.92 million, and its income from operations grew 726.9% year-over-year to $4.89 million.
Furthermore, net income attributable to CAAS’ common shareholders came in at $7.47 million and $0.24 per share, compared to a net loss of $0.32 million and $0.01 per share for the prior-year quarter.
Analysts expect CAAS’ fiscal first quarter (ending March 2023) revenue to increase 6.5% year-over-year to $145.31 million. The company’s EPS for the same quarter is estimated to come in at $0.11. Also, the company surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 156% over the past six months and 24.9% over the past month to close the last trading session at $7.22.
CAAS’ strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating translates to Buy in our POWR Ratings system.
CAAS has an A grade for Value and Sentiment. It has a B grade for Growth. It is ranked third among 45 stocks in the China industry.
Beyond what is stated above, we have also rated CAAS for Momentum, Quality, and Stability. Get all CAAS ratings here.
ARC Document Solutions, Inc. (ARC)
Digital printing company ARC provides digital printing and document-related services in the United States. It provides managed print services, cloud-based document management software, and other digital hosting services.
ARC’s trailing-12-month EV/Sales of 0.71x is 60.6% lower than the industry average of 1.79x, while its trailing-12-month Price/Sales of 0.50x is 63.1% lower than the industry average of 1.37x.
Its trailing-12-month gross profit margin of 33.20% is 14.5% higher than the industry average of 28.99%. Also, its trailing-12-month EBITDA margin of 13.68% is 5.4% higher than the industry average of 12.98%.
On December 8, 2022, ARC announced it would pay a dividend of $0.05 per share on February 28, 2023. This reflects the shareholder return ability of the company.
ARC’s net sales increased marginally year-over-year to $73.10 million for the third quarter that ended September 30. Its adjusted net income came in at $3.70 million, up 15.6% year-over-year, while its EPS came in at $0.09, representing an increase of 12.5% year-over-year.
Over the past six months, the stock has gained 22.1% to close the last trading session at $3.43. Moreover, it has gained 42.3% over the past three months.
ARC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
Also, the stock has an A grade for Value, Sentiment, and Quality. Within the B-rated Outsourcing – Business Services industry, it is ranked first among 42 stocks.
Click here for the additional POWR Ratings for Growth, Momentum, and Stability for ARC.
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BRY shares were trading at $8.95 per share on Monday morning, down $0.15 (-1.65%). Year-to-date, BRY has gained 11.88%, versus a 5.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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