US stocks closed with a mixed performance yesterday as investors evaluated financial reports from major banks and monitored a rise in bond yields driven by worldwide inflation worries. Moreover, concerns over a potential US debt default and recession are anticipated to dampen investor confidence further.
Therefore, I think it could be ideal to invest in quality stocks Nippon Steel Corporation (NPSCY), HeidelbergCement AG (HDELY), and Smurfit Kappa Group Plc (SMFKY), which seem undervalued and are relatively stable. Moreover, the companies pay stable dividends.
The US Consumer Price Index has shown a significant deceleration since it peaked at 9% in June 2022 and currently stands at 5%, the lowest since May 2021. Some experts believe that the CPI has reached an inflection point.
However, inflation remains at hassling levels. Despite GDP growth in the fourth quarter of 2022, Americans are pessimistic about the economy's performance in 2023. According to a recent survey, 75% of Americans fear a recession this year due to high inflation.
Moreover, according to LPL Research, investors are anticipating the possibility of a US debt default as the US Treasury market shows signs of pricing it in, which could lead to increased volatility in the stock market.
Let’s take a look at the stocks mentioned above:
Nippon Steel Corporation (NPSCY)
Headquartered in Tokyo, Japan, NPSCY is engaged in steelmaking and steel fabrication, engineering and construction, chemicals and materials, and system solutions businesses in Japan and internationally.
NPSCY’s forward EV/Sales multiple of 1.09 is 28.6% lower than the 1.53x industry average. Its forward P/S multiple of 0.57 is 49.2% lower than the 1.12 industry average. In terms of forward EV/EBITDA, the stock’s 4.44x is 41.6% lower than the industry average of 7.60x.
NPSCY’s $0.44 annual dividend yields 5.84% on the current share price. It has a four-year average dividend yield of 3.61%. In addition, the company’s dividend payouts have increased at a 91.9% CAGR over the past three years.
During the fiscal third quarter that ended December 31, 2022, NPSCY’s revenue increased 20.6% year-over-year to ¥5.96 trillion ($44.28 billion). Its gross profit grew 9.6% from its year-ago quarter to ¥991.51 billion ($7.37 billion) and profit rose 3.7% year-over-year to ¥548.45 billion ($4.07 billion).
The company has surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
It has soared 59% over the past six months, closing the last trading session at $7.48. It has a 24-month beta of 0.77.
NPSCY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock also has a B grade in Value, Stability, Growth, and Sentiment. Within the A-rated Steel industry, it is ranked first among 34 stocks.
Beyond what we’ve stated above, we have also given NPSCY grades for Momentum and Quality. Get all the NPSCY ratings here.
HeidelbergCement AG (HDELY)
Headquartered in Heidelberg, Germany, HDELY is a cement company that produces and distributes cement, aggregates, ready-mixed concrete, and asphalt worldwide.
In terms of forward non-GAAP P/E, HDELY is currently trading at 9.25x, which is 30.9% lower than the 13.39x industry average. Its 0.93x forward EV/Sales is also 40% lower than the 1.53x industry average. The stock’s forward P/S multiple of 0.62 is 45.1% lower than the 1.12 industry average.
While HDELY has a four-year average dividend yield of 4.11%, it pays an annual dividend of $0.50 that yields 3.25% on the prevailing price level. The company has raised its dividend payout at a CAGR of 7.6% over the past five years.
HDELY’s operating revenue increased 9.7% year-over-year to €1.04billion ($1.14 million) during the fiscal year that ended December 31, 2022. Its profit for the financial year stood at €257 million ($281.59 million), while balance sheet profit amounted to €494.30 million ($542.50 million).
HDELY’s revenue estimate of $23.42 billion for the fiscal year 2023 reflects a 2.4% year-over-year improvement. Its EPS is expected to be $1.68 in the same year.
The stock has gained 81.6% over the past six months to close the last trading session at $15.45.
HDELY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
HDELY has a B grade for Value, Stability, Momentum, and Quality. It is ranked #5 out of 46 stocks in the A-rated Industrial - Building Materials industry.
In addition to the POWR Ratings I’ve just highlighted, one can see HDELY’s ratings for Growth and Sentiment here.
Smurfit Kappa Group Plc (SMFKY)
Headquartered in Dublin, Ireland, SMFKY manufactures, distributes, and sells containerboard, corrugated containers, and other paper-based packaging products in the Americas and Europe.
SMFKY’s forward non-GAAP P/E multiple of 10.64 is 20.5% lower than the 13.39x industry average. Its 1x forward EV/Sales is 34.6% lower than the 1.53x industry average. Its forward P/S multiple of 0.75 is 33.5% lower than the 1.12 industry average.
SMFKY has raised its dividend payout at a CAGR of 7.1% over the past three years. It has a four-year average dividend yield of 3.75%. The company pays an annual dividend of $1.46 that yields 3.85% on the current market price.
During the fiscal year that ended December 31, 2022, SMFKY’s revenue increased 26.8% year-over-year to €12.82 billion ($14.04 billion). Its EBITDA rose 38.4% from the prior year to €2.36 billion ($2.59 billion). Furthermore, the company’s profit for the period grew 39.8% year-over-year to €945 million ($1.04 billion).
Street expects SMFKY’s revenue and EPS to amount to $3.57 and $13.04 billion in the current fiscal year 2023.
Shares of SMFKY have gained 21% over the past six months to close the last trading session at $37.86. Its 60-month beta is 0.96.
SMFKY’s solid outlook is apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
SMFKY has an A grade for Quality and a B for Value, Stability, and Momentum. Within the Industrial - Packaging industry, it is ranked first out of 22 stocks.
Click here to access additional SMFKY ratings for Growth and Sentiment.
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NPSCY shares were unchanged in premarket trading Thursday. Year-to-date, NPSCY has gained 25.93%, versus a 8.71% 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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