The Federal Reserve raised the short-term interest rates by a quarter of a percentage point yesterday, bringing the benchmark rate to a new range of 4.5% and 4.75%, the highest level since October 2007.
Since last year, the Fed’s interest rate hikes have helped cool the runaway inflation. Prices eased for the third consecutive month in December, with the consumer price index (CPI) rising 6.5% year-over-year and declining 0.1% sequentially. Fed Chair Jerome Powell sounded optimistic about inflation, saying, “We can now say for the first time that the disinflationary process has started.”
“And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path,” he added. The Fed’s statement had indications that the FOMC still sees the need for “ongoing increases in the target range.”
When asked if the Fed would stop rate increases before the previously guided median target range of 5% to 5.25%, Powell said, “Absolutely, it’s possible,” depending on inflation and labor market data over the next couple of months. Pantheon Macroeconomics’ Chief Economist Ian Shepherdson believes, “The end of hikes is in sight.”
Amid this backdrop, it could be wise to invest in fundamentally strong stocks CTS Corporation (CTS), American Vanguard Corporation (AVD), and AudioCodes Ltd. (AUDC). These stocks are rated Strong Buy in our proprietary POWR Ratings system.
CTS Corporation (CTS)
CTS manufactures and sells sensors, actuators, and connectivity components in North America, Europe, and Asia. The company provides sensors and actuators, switches, temperature sensors, potentiometers, and fabricated piezoelectric materials and substrates.
CTS’ four-year average dividend yield is 0.53%, and its forward annual dividend of $0.16 per share translates to a 0.35% yield. It paid a quarterly dividend of $0.04 on January 13, 2023.
CTS’ net sales rose 24.1% year-over-year to $151.91 million for the third quarter ended September 30, 2022. The company’s adjusted earnings increased 32% year-over-year to $19.80 million. Its adjusted EPS came in at $0.62, representing an increase of 34.8% year-over-year. In addition, its adjusted EBITDA increased 27.1% year-over-year to $33.80 million.
Analysts expect CTS’ EPS and revenue for the quarter ended December 31, 2022, to increase 17.4% and 12.1% year-over-year to $0.58 and $148.56 million, respectively. Over the past year, the stock has gained 38.6% to close the last trading session at $46.16.
CTS’ POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of 44 stocks within the Technology – Electronics industry. It has an A grade for Quality and a B for Growth and Stability. Click here to see the other ratings of CTS for Value, Momentum, and Sentiment.
American Vanguard Corporation (AVD)
AVD develops, produces, and markets specialty chemicals for agricultural, commercial, and consumer purposes in the United States and globally through its subsidiaries. It sells its products through national distribution corporations, buying groups or co-operatives, sales offices, salesforce executives, sales agents, and wholly-owned distributors.
On January 17, 2023, AVD’s subsidiary AMVAC Chemical Corporation’s specialty markets division, AMGUARD Environmental Technologies, announced the acquisition of the product and trademark assets of American Bio-Systems.
AMGUARD CEO Shayne M. Wetherall said, “BioMop-Plus and Draingel are a great fit with AMGUARD’s portfolio and our strategy to provide compelling biological solutions to the commercial pest control industry. These formulations directly address the foodservice industry’s desire for labor-saving solutions, including the improvement of sanitation practices that currently use standard soap-based and chemical cleaning products that can only ‘break up’ food waste and grease build-up, not remove it.”
Over the last three years, AVD’s dividend payouts have grown at a 9.5% CAGR, while its five-year dividend payouts have increased at a CAGR of 11.8%. Its four-year average dividend yield is 0.44%, and its forward annual dividend of $0.12 per share translates to a 0.53% yield. The company paid a quarterly dividend of $0.03 per share on January 11, 2023.
For the fiscal third quarter ended September 30, 2022, AVD’s net sales increased 3.3% year-over-year to $152.12 million. Its gross profit rose 7.6% from the year-ago period to $61.38 million. The company’s operating income increased 25.7% year-over-year to $11.24 million. Also, its adjusted EBITDA increased 11.4% from the prior-year period to $18.91 million.
In addition, its net income increased 22.6% year-over-year to $6.74 million. Its EPS came in at $0.23, representing an increase of 27.8% year-over-year.
Analysts expect AVD’s EPS and revenue for the quarter ending December 31, 2022, to increase 78.1% and 4.2% year-over-year to $0.29 and $165.45 million, respectively. Over the past year, the stock has gained 48.2% to close the last trading session at $22.59.
It’s no surprise that AVD has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. Within the B-rated Chemicals industry, it is ranked #2 out of 87 stocks.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. Click here to see the other ratings of AVD for Momentum.
AudioCodes Ltd. (AUDC)
Headquartered in Lod, Israel, AUDC is a leading vendor of advanced voice networking and media processing solutions for the digital workplace. It offers solutions, products, and services for unified communications, contact centers, VoiceAI business lines, and service provider businesses.
Over the last three years, AVD’s dividend payouts have grown at a 16.1% CAGR. Its four-year average dividend yield is 1.26%, and its forward annual dividend of $0.36 per share translates to a 1.82% yield.
AUDC’s total revenues increased 11.8% year-over-year to $204.44 million for the third quarter ended September 30, 2022. Its gross profit rose 4.9% year-over-year to $132.62 million. The company’s non-GAAP net income and adjusted EPS came in at $33.03 million and $0.99, respectively.
Analysts expect AUDC’s revenue for the quarter ended December 31, 2022, to increase 9.4% to $72.28 million. Its EPS for the quarter ending March 31, 2023, is expected to increase 9% year-over-year to $0.36. Over the past month, the stock has gained 10.5% to close the last trading session at $19.76.
AUDC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Stability. It is ranked #3 out of 49 stocks in the Technology – Communication/Networking industry. Click here to see the other ratings of AUDC for Growth, Momentum, and Sentiment.
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CTS shares were trading at $46.16 per share on Thursday morning, up $1.65 (+3.71%). Year-to-date, CTS has gained 17.10%, versus a 8.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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