High inflation coupled with the possibility of another rate hike has increased the chances of recession later this year. Therefore, I present value stocks Mercedes-Benz Group AG (MBGAF), McKesson Corporation (MCK), and Mistras Group, Inc. (MG) with the potential to deliver long-term returns.
High inflation reading coupled with stronger-than-expected consumer spending has put the Fed in a tough position. Personal consumption expenditures surged 0.8% last month after gaining 0.1% in March.
Moreover, according to economists polled by Reuters, consumer spending was estimated to rise 0.4%. Strong consumer spending is supported by wage gains in a tight labor market. Wages grew 0.5% in April compared to 0.3% in March.
Federal Reserve policymakers will probably hike the target range for the federal funds rate at their upcoming meeting, according to the CME FedWatch Tool. The members of the Federal Open Market Committee are 70.5% likely to opt for a 25 basis-point increase in the benchmark rate when they meet next month.
In addition, the New York Fed recession probability indicator suggests a 68.2% chance of a U.S. recession sometime in the next 12 months. That’s the highest reading in more than four decades.
Take a look at the stocks mentioned above:
Mercedes-Benz Group AG (MBGAF)
Headquartered in Stuttgart, Germany, MBGAF operates as an automotive company in Germany and internationally. The company develops, manufactures, and sells premium and luxury cars and vans under the Mercedes-AMG, Mercedes-Benz, Mercedes-Maybach, and Mercedes-EQ brands, as well as related spare parts and accessories.
MBGAF’s forward EV/Sales of 1.05x is 4% lower than the industry average of 1.10x. Its forward P/S multiple of 0.49 is 38.3% lower than the industry average of 0.80.
The company pays an annual dividend of $5.72, which translates to a yield of 7.49% at the current price level. It has a four-year average dividend yield of 4.98%.
During the fiscal first quarter ended March 31, 2023, MBGAF revenue increased 7.6% year-over-year to €37.52 billion ($40.08 billion). Its net profit rose 11.9% year-over-year to €4.01 billion ($4.28 billion). Also, its earnings per share increased 13.2% year-over-year to €3.69.
MBGAF’s EPS is expected to increase 26.9% year-over-year to $3.74 for the fiscal second quarter ending June 2023. The company’s revenue for the same quarter is expected to increase 14.6% year-over-year to $42.62 billion. Also, it has surpassed revenue estimates in each of the trailing four quarters, which is impressive.
Shares of MBGAF have gained 32.8% over the past nine months to close the last trading session at $74.82.
MBGAF’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Quality, Value, Stability, and Sentiment. It is ranked first out of 58 in the Auto & Vehicle Manufacturers industry.
Beyond what is stated above, we’ve also rated MBGAF for Momentum. Get all MBGAF ratings here.
McKesson Corporation (MCK)
MCK provides healthcare services in the United States and internationally. It operates through four segments: U.S. Pharmaceutical; Prescription Technology Solutions (RxTS); Medical-Surgical Solutions; and International.
MCK’s forward EV/Sales of 0.19x is 94.7% lower than the industry average of 3.56x. Its forward P/S multiple of 0.18 is 95.8% lower than the industry average of 4.19.
On April 27, the company declared a quarterly dividend of $0.54, payable on July 03, 2023.
The company pays an annual dividend of $2.16, which translates to a yield of 0.56% at the current price level. It has a four-year average dividend yield of 0.86%.
MCK's revenue increased 4.2% year-over-year to $68.91 billion in the fiscal fourth quarter that ended March 31, 2023. Its adjusted earnings increased 14% year-over-year to $992 million. Also, its adjusted earnings per share increased 23.3% year-over-year to $7.19.
Street expects MCK’s revenue for the fiscal first quarter ending June 2023 to increase 4.4% year-over-year to $70.07 billion. Its EPS is expected to marginally year-over-year to $5.88 for the same quarter. Also, it has surpassed revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 18.9% over the past year to close the last trading session at $390.84.
MCK’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
MCK has a B grade for Growth, Quality, Value, Stability, and Sentiment. It is ranked #3 out of 74 stocks in the Medical - Services industry.
Click here to see the additional POWR Ratings for MCK (Momentum).
Mistras Group, Inc. (MG)
MG provides technology-enabled asset protection solutions worldwide. It operates through three segments: Services; International; and Products and Systems.
MG’s forward EV/Sales of 0.59x is 63% lower than the industry average of 1.59x. Its forward P/S multiple of 0.31 is 74.9% lower than the industry average of 1.24.
MG’s revenue increased 3.9% year-over-year to $168.02 million in the fiscal first quarter, which ended March 31, 2023. Gross profit increased 15.5% year-over-year to $46.08 million. Also, adjusted EBITDA increased 88.1% year-over-year to $10.42 million.
The stock has gained 78.2% over the past six months to close the last trading session at $7.02.
MG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
MG also has a B grade for Growth, Sentiment, and Value. It is ranked #2 out of 41 stocks in the B-rated Outsourcing - Business Services industry.
To access additional ratings for MG’s Quality, Stability, and Momentum, click here.
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MBGAF shares were trading at $75.30 per share on Thursday morning, up $0.48 (+0.64%). Year-to-date, MBGAF has gained 15.14%, versus a 9.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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