Although the Fed had indicated higher-than-expected rate hikes this year, the spectacular collapse of the Silicon Valley Bank last week might compel the Fed to scale back interest rate hikes. Amid this backdrop, I believe it could be wise to buy fundamentally strong penny stocks Ambev S.A. (ABEV), Nokia Oyj (NOK), Travelzoo (TZOO), and Data Storage Corporation (DTST).
Before discussing what makes these stocks wise investments, let’s find out what impacts investor sentiment.
The Federal Reserve has made its view very clear that it wants to eliminate the high inflation and aims to bring it down to its 2% target through aggressive interest rate hikes.
Although Fed Chairman Jerome Powell said that the “disinflationary process” has begun, analysts expect the consumer price index to rise 6% year-over-year and 0.4% sequentially in February, while the core CPI is expected to have increased 5.5% year-over-year and 0.4% sequentially.
While job growth declined compared to January, nonfarm payrolls rose by 311,000 in February, higher than the estimate of 225,000, indicating a tight labor market. However, the unemployment rate rose to 3.6% last month, up from 3.4% in January.
The Fed was expected to go forward with a 50-basis-point rate hike next week, given the strong labor market, but the collapse of the Silicon Valley Bank last week is expected to deter the Fed from the half-point rate increase.
Fears of a broader financial crisis will likely lead the Fed to raise rates by 25 basis points next week. In early trade, Fed-fund futures indicate only a 17% chance of a 50-basis-point hike, compared to 70% before the news of the collapse of the Silicon Valley Bank broke. Analysts at Goldman Sachs believe that the FOMC will not deliver a rate hike at its next meeting on March 22, 2023.
Amid this backdrop, it could be wise to buy ABEV, NOK, TZOO, and DTST, given their strong fundamentals and low price. Let’s see what could shape the performance of these stocks in the near term.
Ambev S.A. (ABEV)
Headquartered in Sao Paulo, Brazil, ABEV is engaged in the brewing sector. The company produces, distributes, and sells beer, carbonated soft drinks, bottled water, energy drinks, and other non-alcoholic and non-carbonated beverages across the Americas. It markets products under Adriatica, Brahma, Leffe, Budweiser, Corona, PepsiCo, Lipton, Seven Up, Palm Bay, and others.
In terms of forward non-GAAP P/E, ABEV’s 16.26x is 10.3% lower than the 18.12x industry average. Its forward EV/EBIT of 10.30x is 30.6% lower than the 14.85x industry average. Also, the stock's 2.32x forward EV/Sales is 40% lower than the 1.66x industry average.
ABEV’s net revenue increased 3.1% year-over-year to R$22.69 billion ($4.35 billion) for the fourth quarter ended December 31, 2022. Its gross profit increased 1.7% year-over-year to R$11.71 billion ($2.24 billion). In addition, its normalized EBITDA increased 4.8% year-over-year to R$7.11 billion ($1.36 billion). The company’s profit increased 35.7% year-over-year to R$5.08 billion ($973.45 million). Also, its EPS came in at R$0.32, representing an increase of 37.7% year-over-year.
Analysts expect ABEV’s revenue for the quarter ending March 31, 2023, to increase 2% year-over-year to $3.75 billion. For fiscal 2024, its EPS is expected to increase 21.4% year-over-year to $0.19. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 5.7% to close the last trading session at $2.58.
ABEV’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Beverages industry, it is ranked #9 out of 37 stocks. To see the other ratings of ABEV for Growth, Value, and Momentum, click here.
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, NOK provides mobile, fixed, and cloud network solutions worldwide. The company operates through four segments Mobile Network, Network Infrastructure, Cloud and Network Services, and Nokia Technologies.
On January 23, 2023, NOK announced that it had signed a new cross-license patent agreement with Samsung following the expiry of the previous agreement at the end of 2022. The agreement covers NOK’s fundamental inventions in 5G and other technologies, and Samsung will make payments to NOK for a multi-year period beginning January 1, 2023.
Nokia Technologies President, Jenni Lukander, said, “Samsung is a leader in the smartphone industry, and we are delighted to have reached an amicable agreement with them. The agreement gives both companies the freedom to innovate, and reflects the strength of Nokia’s patent portfolio, decades-long investments in R&D, and contributions to cellular standards and other technologies.”
In terms of forward Price/Sales, NOK’s 0.97x is 62.4% lower than the 2.59x industry average. Its forward EV/EBITDA of 5.49x is 56.7% lower than the 12.66x industry average. Also, the stock's 0.86x forward EV/Sales is 67.8% lower than the 2.68x industry average.
NOK’s net sales for the fourth quarter ended December 31, 2022, increased 16.1% year-over-year to €7.45 billion ($7.93 billion). Its gross profit increased 25.8% year-over-year to €3.19 billion ($3.39 billion). Additionally, its profit for the period increased 363.5% year-over-year to €3.15 billion ($3.35 billion), while its EPS came in at €0.56, representing an increase of 366.7% from the prior-year period.
For the quarter ending March 31, 2023, NOK’s EPS and revenue are expected to increase 10.9% and 9.5% year-over-year to $0.08 and $6.15 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. The stock has gained 1.1% year-to-date to close the last trading session at $4.69.
It is no surprise that NOK has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. Within the B-rated Technology – Communication/Networking industry, it is ranked #5 out of 49 stocks. The company has a B grade for Value and Quality.
It has an A grade for Value and a B for Growth and Momentum. Click here to see the other ratings of NOK for Stability, Sentiment, and Quality.
Travelzoo (TZOO)
TZOO is a global internet media company that offers travel, entertainment, and lifestyle experiences. The company’s segments include Travelzoo North America, Travelzoo Europe, and Jack’s Flight Club.
In terms of forward non-GAAP P/E, TZOO’s 8.39x is 45.6% lower than the 15.43x industry average. Its forward EV/EBIT of 13.74x is 13.6% lower than the 15.91x industry average. Also, the stock's 1.03x forward EV/Sales is 45.7% lower than the 1.89x industry average.
TZOO’s revenues for the third quarter ended September 30, 2022, increased 1% year-over-year to $15.85 million. Its gross profit rose 6.5% year-over-year to $13.53 million. The company’s non-GAAP operating income increased 3.1% over the prior-year quarter to $1.11 million. Its net income attributable to TZOO and EPS came in at $795K and $0.06, respectively.
Analysts expect TZOO’s revenue for the quarter ended December 31, 2022, to increase 30.5% year-over-year to $18.45 million. Its EPS for fiscal 2022 is expected to increase 287.2% year-over-year to $0.59. The stock has gained 10.3% year-to-date to close the last trading session at $4.91.
TZOO’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TZOO has an A grade for Quality and a B for Growth. It is ranked #7 out of 59 stocks within the Internet industry. Click here to see the other ratings of TZOO for Value, Momentum, Stability, and Sentiment.
Data Storage Corporation (DTST)
DTST provides subscription-based, long-term agreements for disaster recovery solutions, infrastructure as a service (IaaS), cyber security, and voice and data solutions. The company provides cloud-managed services and technologies across multiple platforms. It provides solutions and services to a range of clients in several industries, including healthcare, banking and finance, distribution services, and others.
In terms of forward Price/Sales, DTST’s 0.50x is 80.6% lower than the 2.59x industry average. Its forward EV/EBITDA of 3.28x is 74.1% lower than the 12.66x industry average. Also, the stock's 0.10x forward EV/Sales is 96.3% lower than the 2.68x industry average.
DTST’s sales increased 14.5% year-over-year to $4.42 million for the third quarter ended September 30, 2022. Its gross profit rose 20.1% over the prior-year quarter to $1.85 million.
For the quarter ended December 31, 2022, DTST’s revenue is expected to increase 9.9% year-over-year to $5.40 million. The stock has gained 15.9% year-to-date to close the last trading session at $1.72.
DTST’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
Within the Internet industry, it is ranked #6. It has an A grade for Sentiment and a B for Value and Quality. To see the other ratings of DTST for Growth, Momentum, and Stability, click here.
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ABEV shares fell $0.02 (-0.78%) in premarket trading Monday. Year-to-date, ABEV has declined -5.51%, versus a 0.58% 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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