In response to the hotter-than-expected CPI data for August, the Fed increased interest rates by 75 basis points for the third consecutive time yesterday. The central bank has also hinted at maintaining its aggressive stance until inflation comes under control. Therefore, many economists expect the economy to witness a recession by the end of this year.
With the United States, China, and Europe experiencing a slowdown, World Bank President David Malpass worries that the ‘global growth is slowing sharply’ and is most likely to have devastating consequences for emerging markets and developing economies.
However, Cathie Wood still believes deflation is on the horizon. She pointed out that inflation is unwinding sequentially. In addition, as supply chain bottlenecks eased, commodity prices have fallen considerably from their recent highs.
Also, a strong dollar has helped lower import costs, and retailers are offering big discounts to thin their bloated inventories. These factors indicate that the economy might not face a recession.
After two consecutive quarters of negative GDP growth, Bank of America forecasts that the third quarter will depict a 1.1% quarter-over-quarter rise in GDP. The bank expects 1.6% GDP growth in 2022.
Given this backdrop, we think, investing in quality stocks with strong fundamentals, such as Genuine Parts Company (GPC), Albertsons Companies, Inc. (ACI), and Casey's General Stores, Inc. (CASY), could be wise.
Genuine Parts Company (GPC)
GPC distributes automotive replacement parts, industrial parts, and materials. The company distributes automotive replacement parts for imported vehicles, hybrid and electric vehicles, trucks, SUVs, motorcycles, and recreational vehicles. Also, it operates across the U.S., Canada, France, Australia, and internationally.
For the fiscal second quarter that ended June 30, 2022, GPC’s net sales increased 17.1% year-over-year to $5.60 billion. Its gross profit rose 16.1% year-over-year to $1.96 billion. The company’s adjusted net income increased 23.9% year-over-year to $313.09 million. Also, its adjusted net income per share increased 26.4% year-over-year to $2.20.
For the third quarter ending September 30, 2022, GPC’s EPS and revenue are expected to increase 9.1% and 11.7% year-over-year to $2.05 and $5.38 billion, respectively. It has surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
GPC shares have gained 28.5% over the past year to close its last trading session at $155.60.
GPC’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, translating to a 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 Growth, Sentiment, and Quality. Within the B-rated Auto Parts industry, it is ranked #4 out of 65 stocks. Click here to see the other ratings of GPC for Value, Momentum, and Stability.
Albertsons Companies, Inc. (ACI)
ACI is engaged in the operation of food and drug stores in the United States. It offers grocery, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
For the fiscal quarter that ended June 18, 2022, ACI’s net sales and other revenue increased 9.6% year-over-year to $23.31 billion. Its gross margin grew 5.7% from the year-ago value to $6.54 billion, while its operating income was up 10.6% year-over-year, to $760.10 million.
The company’s adjusted net income came in at $582 million, representing an increase of 12.5% year-over-year. Also, its adjusted net income per share rose 12.3% year-over-year to $1. In addition, the ACI’s adjusted EBITDA increased 8.6% from the prior-year value to $1.42 billion.
Analysts expect ACI’s EPS for the quarter ended August 31, 2022, to increase 7.3% year-over-year to $0.56. Its revenue for the to-be-reported quarter is expected to increase 6.7% year-over-year to $17.62 billion. It has surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has declined 8.4% over the past month to close the last trading session at $26.35.
ACI’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Sentiment, and Quality. In the A-rated Grocery/Big Box Retailers industry, it is ranked #1 of 38 stocks.
In addition to the POWR Rating grades I have highlighted, you can check the other ratings of ACI for Momentum and Stability here.
Casey's General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey’s and Casey’s General Store names and offers freshly prepared foods, such as pizza, donuts, and sandwiches; beverages; tobacco and nicotine products; health and beauty aids; automotive products; and other non-food items.
On June 14, 2022, CASY and MTN DEW announced the launch of a new flavor line-up MTN DEW OVERDRIVE, that would be available in more than 2400 Casey’s convenience stores. Adding a new flavorful product is expected to have a strong demand and boost the company’s revenues.
CASY’s total revenue increased 40% year-over-year to $4.45 billion in the fiscal first quarter that ended July 31, 2022. The company’s net income came in at $152.93 million, up 28.3% year-over-year, while its EPS grew 28.2% from the year-ago value to $4.09. Also, its adjusted EBITDA increased 20.6% year-over-year to $293.21 million.
The consensus EPS estimate of $2.94 for the second quarter ending October 31, 2022, represents a 13.5% improvement year-over-year. The consensus revenue estimate of $4.01 billion for the current quarter indicates a 23% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 15.5% to close the last trading session at $212.86.
CASY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #3 in the same industry. Click here to see the other ratings of CASY for Momentum and Stability.
GPC shares were trading at $154.24 per share on Thursday afternoon, down $1.36 (-0.87%). Year-to-date, GPC has gained 12.19%, versus a -20.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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