The market has faced multiple headwinds over the past year, with persistent inflation and the Fed’s aggressive interest rate hikes. The Fed’s aggressive stance has helped cool the runaway inflation. The Consumer Price Index (CPI) for December rose 6.5% year-over-year and declined 0.1% sequentially.
Recently, the Federal Reserve raised the short-term interest rates by a quarter of a percentage point, bringing the benchmark rate to a new range of 4.5% and 4.75%, the highest level since October 2007.
Fed Chair Jerome Powell said, “While recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.” The Fed’s statement indicated that the FOMC still sees the need for “ongoing increases in the target range.”
The Fed’s interest rate hikes are expected to fuel a recession, putting the stock market under pressure this year. Amid this backdrop, investors could look to add fundamentally strong companies with strong balance sheets and solid growth prospects.
To that end, it could be wise for investors to buy fundamentally strong stocks General Motors Company (GM), Stellantis N.V. (STLA), and Textron Inc. (TXT).
General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, and automobile parts and accessories worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.
In terms of forward non-GAAP P/E, GM’s 6.80x is 54.8% lower than the 15.03x industry average. Likewise, its 13.43x forward EV/EBIT is 4.8% lower than the 14.10x industry average.
On January 20, 2023, GM announced its plans to invest $918 million in four U.S. manufacturing sites, including $854 million to prepare these facilities to produce the company’s sixth generation Small Block V-8 engine and an additional $64 million in Rochester, New York and Defiance, Ohio for castings and components to support EV production.
These investments will enable the company to strengthen its full-size truck and SUV business and continue to support the company’s growing EV product portfolio.
For the fiscal fourth quarter that ended December 31, 2022, GM’s revenue increased 28.4% year-over-year to $43.11 billion. Its net income attributable to stockholders increased 14.8% year-over-year to $2 billion. In addition, its adjusted EPS came in at $2.12, representing a 57% increase from the year-ago quarter.
GM’s revenue for the quarter ending March 31, 2023, is expected to increase 7% year-over-year to $38.49 billion, respectively. Its EPS for the quarter ending June 30, 2023, is expected to increase 41.8% year-over-year to $1.62.
The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 23.4% over the past month to close the last trading session at $41.50.
GM’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Auto & Vehicle Manufacturers industry, it is ranked #20 out of 62 stocks. It has a B grade for Growth and Value.
Click here to see the additional POWR Ratings of GM for Momentum, Stability, Sentiment, and Quality.
Stellantis N.V. (STLA)
Headquartered in Hoofddorp, Netherlands, STLA engages in the design, engineering, manufacturing, distribution, and sale of automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, and production systems worldwide.
In terms of forward non-GAAP P/E, STLA’s 2.97x is 80.3% lower than the 15.03x industry average. Likewise, its 0.17x forward EV/Sales is 86.4% lower than the 1.26x industry average.
On January 9, 2023, STLA and Element 25 Limited signed a binding agreement for Element 25 to supply battery-grade, high-purity manganese sulfate monohydrate to STLA for use in electric vehicle (EV) battery packs. The agreement with Element 25 should help STLA secure substantial supplies of raw materials for its battery electric vehicle (BEV) production.
For the fiscal third quarter of 2022, STLA’s net revenues gained 29.3% year-over-year to €42.10 billion ($46.17 billion). Its consolidated shipments increased 13.3% year-over-year to 1.28 million units.
Analysts expect STLA’s revenue for the quarter ending March 31, 2023, to increase 10.7% year-over-year to $48.44 billion. Its revenue for the fiscal year 2022 is expected to increase 11.4% year-over-year to $191.46 billion. Over the past three months, the stock has gained 24.2% to close the last trading session at $16.60.
STLA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. Within the same industry, it is ranked #8. It has an A grade for Value and a B for Stability and Sentiment.
We have also given STLA grades for Growth, Momentum, and Quality. Get all STLA ratings here.
Textron Inc. (TXT)
TXT operates in the aircraft, defense, industrial, and finance businesses. It operates through five segments, Textron Aviation; Bell; Textron Systems; Industrial; and Finance.
In terms of forward P/B, TXT’s 2.12x is 21.7% lower than the 2.71x industry average. Likewise, its 14.12x forward EV/EBIT is 11% lower than the 15.86x industry average.
TXT’s total revenues for the fiscal fourth quarter (ended December 31, 2022) increased 9.5% year-over-year to $3.64 billion. Its net cash from operating activities increased 24% year-over-year to $527 million.
The company’s net income rose 9.2% year-over-year to $226 million. Additionally, its EPS came in at $1.07, representing a 15.1% increase from the prior-year quarter.
Analysts expect TXT’s EPS and revenue for the quarter ending March 31, 2023, to increase 12.1% and 4.7% year-over-year to $0.99 and $3.14 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 16.8% over the past six months to close the last trading session at $75.73.
TXT’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked first out of 73 stocks in the Air/Defense Services industry. The company has a B grade for Value, Sentiment, and Quality.
Click here to see the POWR Ratings of TXT for Growth, Momentum, and Stability.
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GM shares were trading at $41.43 per share on Friday afternoon, down $0.07 (-0.17%). Year-to-date, GM has gained 23.16%, versus a 8.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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