Sky-high inflation and the Fed’s monetary tightening have kept the stock market under immense pressure. Given that market jitters are unlikely to diminish anytime soon, investors could explore Loews Corporation (L), Liberty Energy Inc. (LBRT), and Key Tronic Corporation (KTCC), which have gained significant momentum.
Several macroeconomic challenges and geopolitical chaos have been affecting investors’ optimism. The Fed’s consecutive rate hikes, in an effort to reduce liquidity and tamp down the multi-decade-high inflation, have triggered fears of an economic slump.
However, as a result of the monetary policy tightening, inflation fell to its lowest rate since March 2021, to 4% year-over-year in May 2023. Moreover, consumers and investors were spared from another rate hike in June, marking the first break after 15 months of consecutive increases.
However, since the hiring is still stronger-than-expected and inflation remains above the desired range of 2%, Federal Reserve Chair Jerome Powell signaled further rate hikes in 2023.
Some experts fear that the rate hikes could have an excruciating impact on the economy in 2023. Also, the 10-year treasury yield, long seen as a Wall Street recession indicator, is the most inverted since March, further aggravating those fears.
Deutsche Bank has predicted that the U.S. economy could tip into a “moderate recession” beginning in the final three months of the year and continuing through the first three months of 2024. The economy is also anticipated to contract by 0.4%, compared to 1.4% growth this year.
On the contrary, along with Moody’s Analytics chief economist Mark Zandi, Goldman Sachs Group Inc. (GS) and Bank of America Corp. (BAC) have expressed an optimistic outlook for the U.S. economy in 2023.
Given such market uncertainties, which could hover for a while, quality momentum stocks L, LBRT, and KTCC, with attractive valuations, could be wise portfolio additions now.
Loews Corporation (L)
L provides commercial property and casualty insurance in the United States and internationally. The company offers specialty insurance products like management and professional liability, other coverage products, surety and fidelity bonds, property insurance, and casualty insurance.
For the three months that ended March 31, 2023, the company repurchased 8.2 million shares of its common stock at an aggregate cost of $486 million.
L paid its shareholders a quarterly dividend of $0.0625 per share on June 6, 2023. It pays an annual dividend of $0.25 per share, which translates to a dividend yield of 0.43%. The company has paid dividends for 33 consecutive years.
In terms of trailing-12-month EV/EBITDA, L’s 10.07x is 19.2% lower than the 12.46x industry average. Its 0.96x trailing-12-month Price/Sales is 58.4% lower than the 2.31x industry average.
L’s trailing-12-month cash from operations of $3.61 billion is significantly higher than the industry average of $147.20 million. Likewise, its 4.84% CAPEX/Sales is 152.5% higher than the 1.92% industry average.
For the fiscal first quarter that ended March 31, 2023, L’s total revenues increased 11.2% year-over-year to $3.78 billion. Its adjusted EBITDA rose 28.4% over the prior-year quarter to $86 million. Net income attributable to L and net income per share increased 16.5% and 24.8% year-over-year to $375 million and $1.61, respectively.
The company’s net cash flow from operations stood at $719 million, up 70% from the year-ago value. Moreover, its retained earnings came in at $15.29 billion as of March 31, 2023, compared to $14.93 billion as of December 31, 2022.
Over the past three months, L’s stock has gained 3.9% to close the last trading session at $58.23. The stock is trading above its 50-day and 200-day moving averages of $57.91 and $57.19, respectively, indicating an uptrend.
L’s POWR Ratings reflect this promising outlook. 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.
It has a B grade for Momentum, Stability, and Sentiment. It is ranked #8 out of 56 stocks in the B-rated Insurance - Property & Casualty industry.
Beyond what we have highlighted above, one can also see additional ratings of L for Growth, Value, and Quality here.
Liberty Energy Inc. (LBRT)
LBRT provides hydraulic services and related technologies to onshore oil and natural gas exploration and production companies in North America. It owns and operates two sand mines in the Permian Basin and a fleet of approximately 40 active hydraulic fracturings.
During the quarter that ended March 31, 2023, LBRT repurchased and retired 5,166,730 shares of Class A common stock at $14.44 per share, representing 2.9% of shares outstanding, for approximately $75 million.
On April 18, LBRT’s board declared a dividend of $0.05 per share of Class A common stock, which was paid to the holders on June 20, 2023. LBRT pays a $0.20 per share dividend annually, which translates to a 1.50% yield on the current share price.
In terms of forward non-GAAP P/E, LBRT is trading at 3.67x, 58.7% lower than the industry average of 8.86x. Its forward EV/EBITDA multiple of 2.12 is 58.7% lower than the industry average of 5.14.
LBRT’s trailing-12-month ROCE, ROTC, and ROTA of 40.24%, 25.53%, and 20.56% are 69.3%, 127.7%, and 133.3% higher than the industry averages of 23.77%, 11.21%, and 8.81%, respectively. Likewise, its 1.87x asset turnover ratio is 188.8% higher than the 0.65x industry average.
For the fiscal first quarter that ended March 31, 2023, LBRT’s revenue grew 59.2% year-over-year to $1.26 billion, while its operating income stood at $225.12 million, up significantly from the year-ago value.
Net income attributable to LBRT stockholders and net income per common share came in at $162.66 million and $0.90, compared to net loss and net loss per common share of $5.38 million and $0.03, respectively, in the previous-year quarter.
LBRT’s revenue and EPS for the fiscal second quarter ending June 2023 are expected to increase 38% and 69.4% year-over-year to $1.30 billion and $0.97, respectively. Moreover, it surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is promising.
Over the past three months, the stock has gained 3.6% to close the last trading session at $13.31. The stock has gained 3.2% over the past month. The stock is currently trading above its 50-day moving average of $12.91.
It’s no surprise that LBRT has an overall rating of B, which translates to Buy in our POWR Ratings system.
It has an A grade for Value and B for Growth and Momentum. Within the 44-stock Energy - Services industry, it is ranked #8.
Click here to view LBRT’s ratings for Sentiment, Quality, and Stability.
Key Tronic Corporation (KTCC)
KTCC provides contract manufacturing services to Original Equipment Manufacturers (OEM). The company offers integrated electronic and mechanical engineering, assembly, sourcing and procurement, logistics, and new product testing services.
KTCC’s trailing-12-month EV/EBITDA of 10.12x is 32.7% lower than the 15.04x industry average. Its trailing-12-month Price/Sales multiple of 0.11 is 96.3% lower than the industry average of 2.84.
KTCC’s trailing-12-month ROTA of 1.17% is significantly higher than the 0.02% industry average. Likewise, its 1.31x asset turnover ratio is 115.5% higher than the 0.61x industry average.
For the fiscal third quarter that ended April 1, 2023, KTCC’s net sales increased 18.9% year-over-year to $164.55 million, while its gross profit increased 24.1% year-over-year to $14.28 million.
Its net income rose 96.2% over the prior-year quarter to $1.98 million, whereas its net income per share came in at $0.18, representing an increase of 100% year-over-year. Moreover, its total current assets stood at $360.27 million as of April 1, 2023, compared to $340.01 million as of July 2, 2022.
For the fiscal fourth quarter of 2023, KTCC expects to report revenue from $150 million to $160 million and earnings per share between $0.10 and $0.20.
Over the past six months, the stock has gained 22.9% to close the last trading session at $5.52. It gained 1.3% intraday. The stock is trading above its 200-day moving average of $5.43.
KTCC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Growth and Momentum and B for Value, Stability, and Sentiment. Within the Technology – Services industry, it is ranked #13 out of 81 stocks.
To see KTCC’s additional ratings (Quality), click here.
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L shares were trading at $58.04 per share on Thursday morning, down $0.19 (-0.33%). Year-to-date, L has declined -0.29%, versus a 14.60% 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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