The October inflation report came in lower than expected, indicating that inflationary pressures are easing. While Federal Reserve Chair Jerome Powell signaled a slowdown in this month’s interest rate hike, he stressed that borrowing costs would remain high for the foreseeable future in a bid to fight the worst inflation in 40 years.
He added that the terminal rate is likely to be “somewhat higher” than the 4.6% projected by policymakers in September.
Furthermore, U.S. consumer confidence slipped to a four-month low in November. This is further heightening the risks of a recession next year. According to Citigroup Inc. (C) chief economist Nathan Sheets, the U.S. is expected to enter a recession by mid-2023.
“As we survey the prospects for the global economy, we see many reasons for concern, including continued challenges from the pandemic and the Russia-Ukraine war, high inflation, and headwinds from central bank rate hikes. Reflecting these factors, the global economy is likely to endure 'rolling' country-level recessions during the coming year,” Sheets wrote in a client note last Wednesday.
Bank of America CEO Brian Moynihan also expects a “mild recession” in 2023.
Given the uncertain economic conditions, fundamentally strong stocks Deere & Company (DE), KT Corporation (KT), and Armstrong World Industries, Inc. (AWI) might be ideal additions to your watchlist this week. These stocks have been recently upgraded in our proprietary POWR Ratings system.
Deere & Company (DE)
DE manufactures, distributes, and delivers various agricultural, construction, and forestry equipment worldwide. The company operates through four segments: Production and Precision Agriculture; Small Agriculture and Turf; Construction and Forestry; and Financial Services.
On October 31, DE announced entering a partnership with Advantage Capital to increase investment in supporting underrepresented entrepreneurs and business owners.
DE’s commitment to Advantage Capital’s Empower the Change (EPC) growth fund as a lead investor is a part of the company’s broader objective of allocating $500 million within the next three years to identify and grow relationships with underrepresented and disadvantaged business enterprises and create equitable wealth within the agriculture industry.
On October 26, DE entered a strategic partnership with Iowa State University (ISU) to establish a demonstration site consisting of four different fields and processes that will allow DE to test sustainable solutions for large grain production systems in real-world scenarios. Over a five-year production cycle, four different crop production systems are expected to be implemented.
In the fiscal 2022 fourth quarter ended October 30, 2022, DE’s net sales and revenues increased 37.2% year-over-year to $15.54 billion. Its operating profit grew 74.8% from the prior-year quarter to $2.96 billion. Net income attributable to DE came in at $2.25 billion, up 75.1% year-over-year. Furthermore, the company’s EPS rose 80.6% year-over-year to $7.44.
DE pays a $4.52 per share dividend annually, which translates to a 1.01% yield on the current share price. Its four-year average dividend yield is 1.42%. The company’s dividend payouts have grown at a 12.8% CAGR over the past three years and 12.7% CAGR over the past five years.
The consensus EPS estimate of $27.86 for the fiscal year (ending October 2023) indicates a 16.2% year-over-year improvement. The consensus revenue estimate for the ongoing year of $53.85 billion reflects an increase of 12.4% from the prior year. Also, the company’s EPS and revenue for the fiscal year 2024 are expected to increase 4.7% and 2.7% year-over-year to $29.17 and $55.32 billion, respectively.
Moreover, the company has topped the consensus revenue estimates in three of the trailing four quarters.
Shares of DE have gained 14.2% over the past month and 27.3% year-to-date to close its last trading session at $445.61.
DE’s strong fundamentals are reflected in its POWR Ratings. On November 25, the stock’s overall rating was upgraded to a B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DE has a grade of B for Growth and Sentiment. In the 79-stock B-rated Industrial-Machinery industry, it is ranked #34.
Click here to see the additional POWR Ratings for DE (Value, Momentum, Quality, and Stability).
KT Corporation (KT)
KT offers integrated telecommunications and platform services internationally. The company operates through four segments: Information and Communications Technologies; Finance; Satellite Broadcasting; and Other. It is headquartered in Seongnam, South Korea.
On October 7, KT announced that it would strengthen its strategic partnership with Hyundai Motor Company (HYMTF). KT will expand the Connected Car business, for which the company has been collaborating with HYMTF for many years, and further plans to provide communication modules and connectivity to HYMTF’s domestic and overseas OEM vehicles.
In September, KT SAT unveiled the Multi-Orbit Satellite Business Strategy to the public at WSBW 2022 in Paris. KT SAT prepares for the Flexible HTS business by providing flexible satellite service by embracing increasing customer demand for data worldwide. Also, KT SAT aims to be a multi-orbit satellite provider, enabling it to provide the best quality satellite service.
As a part of the strategy, investment in Mangata Network, an MEO/HEO satellite services startup in the U.S., was completed early this year. In addition, KT SAT submitted a filing with the International Telecommunication Union (ITU) for LEO constellation design last year.
For the third quarter of fiscal 2022, KT’s operating revenue increased 4.2% year-over-year to ₩6.48 trillion ($4.99 billion). Its operating income came in at ₩452.90 billion ($348.79 million), up 18.4% year-over-year. The company’s EBITDA increased 6.4% year-over-year to ₩1.36 trillion ($1.05 billion). The company’s assets stood at ₩40.65 trillion ($31.31 billion), compared to ₩35.83 trillion ($27.59 billion) a year ago.
KT pays a $0.75 per share dividend annually, which translates to a 5.27% yield on the current share price. Its four-year average dividend yield is 4.63%. The company’s dividend payouts have grown at CAGRs of 16.7% over the past three years and 16.6% over the past five years.
Analysts expect KT’s revenue for the fiscal year ending December 2023 to increase 3.3% year-over-year to $20.40 billion, while the company’s EPS is expected to increase 4.2% year-over-year to $1.96. The stock has gained 12.8% over the past month and 13.7% year-to-date to close the last trading session at $14.32.
KT’s POWR Ratings reflect this promising outlook. On November 25, the stock’s overall rating was upgraded to A, which equates to a Strong Buy in our POWR Ratings system.
KT has a grade of A for Value and Stability. It is ranked #5 of 48 stocks in the A-rated Telecom - Foreign industry.
Click here to access additional POWR Ratings (Momentum, Sentiment, Quality, and Growth) for KT.
Armstrong World Industries, Inc. (AWI)
AWI manufactures and sells ceiling systems primarily for use in the construction and renovation of residential and commercial buildings in the United States, Canada, and Latin America. The company operates through Mineral Fiber and Architectural Specialties segments.
On October 19, AWI’s Board of Directors approved a 10% increase in the company’s quarterly cash dividend to $0.254 per share of common stock. The dividend was paid to shareholders on November 17, 2022.
“This marks the fourth consecutive year we have announced an increase in our dividend and reflects the Board of Directors' continued confidence in our growth strategy and our ability to generate steady cash flow and earnings consistently. Our healthy balance sheet supports a balanced pursuit of all our capital allocation priorities, and returning cash directly to shareholders remains a core priority,” said Vic Grizzle, AWI’s President, and CEO.
AWI’s annual dividend of $1.02 yields 1.35% on the current price. Its four-year average dividend yield is 0.86%. The company’s dividend payouts have increased at a 1.7% CAGR over the past three years.
AWI’s net sales increased 11.2% year-over-year to $325 million. The company’s operating income grew 1.7% from the year-ago value to $73.30 million. Its adjusted EBITDA was $105 million, up 5.3% year-over-year. Its adjusted net income from continuing operations increased 12.4% from the prior-year period to $63 million, while its adjusted EPS came in at $1.36, up 16.2% year-over-year.
Analysts expect AWI’s revenue and EPS for the current fiscal year ending December 2022 to be $1.23 billion and $4.81, indicating 11.1% and 10.2% year-over-year increases, respectively. The company’s revenue and EPS for the next year are expected to grow 6.3% and 13.4% year-over-year to $1.31 billion and $5.45, respectively.
The stock has gained marginally over the past month to close its last trading session at $75.14.
AWI’s fundamental strength is reflected in its POWR Ratings. The stock’s overall rating was upgraded to a B (Buy) in our proprietary rating system on December 2. It also has a grade of B for Quality.
In the Home Improvement & Goods industry, it is ranked #15 of 60 stocks. Click here to access AWI’s additional POWR Ratings for Value, Growth, Stability, Sentiment, and Momentum.
DE shares fell $1.61 (-0.36%) in premarket trading Monday. Year-to-date, DE has gained 31.19%, versus a -13.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
3 Upgraded Stocks to Add to Your Watchlist This Week StockNews.com
