The Fed’s aggressive interest rate hikes hammered equities last year, with the benchmark S&P 500 shedding 19.3% and the tech-heavy Nasdaq tumbling nearly 33%. The central bank raised its benchmark interest rate to the highest level in 15 years and has indicated more rate hikes this year.
While the fears of the Fed’s high rates ramming the stock market this year are heightened, Patrick Armstrong, chief investment officer at Plurimi Wealth, said it’s not going to be the Fed determining the market this year. He thinks it’s going to be companies that can grow earnings, defend their margins, and probably move higher.
Moreover, President Joe Biden recently signed a $1.66 trillion bill funding the U.S. government for the fiscal year 2023. The higher spending should help boost the U.S. economy.
As the stock market is expected to rebound this year, we think it could be wise to buy the fundamentally sound stocks, Dr. Reddy’s Laboratories Limited (RDY), Berry Global Group, Inc. (BERY), Aarons Company Inc. (AAN), and Karat Packaging Inc. (KRT), which are yet to attract significant investor attention, but have solid potential.
Dr. Reddy’s Laboratories Limited (RDY)
Headquartered in Hyderabad, India, RDY is a globally integrated pharmaceutical firm. Its segments include Global Generics; Pharmaceutical Services and Active Ingredients (PSAI); Proprietary Products; and Others. The company is also involved in the biologics industry.
On December 19, RDY announced that its tocilizumab biosimilar candidate, DRL_TC, successfully met its primary and secondary endpoints in a Phase 1 study. The successful outcome of this study represents an important milestone in RDY’s commitment to making high-quality biosimilar products more accessible and affordable to healthcare providers and patients around the world.
On September 7, RDY announced the launch of Lenalidomide Capsule, a therapeutic equivalent generic version of REVLIMID (lenalidomide) Capsules approved by the U.S. Food and Drug Administration in the U.S. market.
Marc Kikuchi, CEO of North America Generics of RDY, said, “We are pleased with the first-to-market launch of two of our six strengths of Lenalidomide Capsules with 180-day market exclusivity.”
The company pays a $0.38 per share dividend annually, which translates to a 0.73% yield on the current price, which is higher than its four-year average dividend yield of 0.61%. RDY’s dividend payments have grown at a CAGR of 10.3% over the past three years. The company has increased its dividends for three consecutive years.
RDY’s revenues increased 9.4% from the previous year’s quarter to Rs. 63.06 billion ($762.23 million) in the fiscal second quarter ended September 30, 2022. Its gross profit increased 21% year-over-year to Rs.37.25 billion ($450.25 million).
Moreover, the company’s profit for the period rose 12.2% year-over-year to Rs. 11.13 billion ($134.53 million), while its EPS rose 12.1% year-over-year to Rs 66.89.
The consensus EPS estimate of $2.65 for the current fiscal year (ending March 2023) indicates a 17.3% year-over-year improvement. Likewise, the consensus revenue estimate of $2.85 billion for the same year reflects a rise of 3% from the prior year.
The stock has gained 1.1% over the past five days to close the last trading session at $51.75.
RDY’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Growth, Value, and Stability. Within the Medical – Pharmaceuticals industry, it is ranked #12 of 162 stocks.
Beyond what we stated above, we also have RDY’s ratings for Momentum, Sentiment, and Quality. Get all RDY ratings here.
Berry Global Group, Inc. (BERY)
Packaging company BERY is a manufacturer and supplier of flexible, rigid, and non-woven products for use in consumer and industrial-end markets. The company functions through the broad segments of Consumer Packaging International; Consumer Packaging North America; Engineered Materials; and Health, Hygiene & Specialties.
On November 15, BERY declared its latest quarterly dividend of $0.25, which is payable to its shareholders on December 15, 2022. The company’s $1 annual dividend yields 1.65% at its current share price.
In the fiscal quarter ended October 1, 2022, BERY’s net sales and operating income came in at $3.42 billion and $336 million, respectively. Its operating EBITDA rose 9% from the prior-year quarter to $539 million. Moreover, its adjusted EPS improved by 18% year-over-year to $2.19 in the same period.
Its EPS estimate of $1.31 for the fiscal first quarter ending December 2022 indicates a 4.7% increase year-over-year. The stock has surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
BERY’s stock has gained 29.9% over the past three months to close the last trading session at $60.43.
It is no surprise that the stock has an overall B rating, which equates to a Buy in our proprietary rating system.
BERY also has a B grade for Value. In the A-rated Industrial - Packaging industry, the stock is ranked #4 among 22 stocks.
To access the additional POWR Ratings for BERY for Growth, Momentum, Stability, Sentiment, and Quality, click here.
Aarons Company Inc. (AAN)
AAN provides lease-to-own and purchase solutions. The company engages in direct-to-consumer sales and lease ownership of furniture, appliances, electronics, computers, and accessories through company-operated and franchised stores in the United States and Canada, as well as its e-commerce platform. It also manufactures and supplies bedding and upholstered furniture.
On November 9, AAN declared a regular quarterly cash dividend of $0.11 per share, payable on January 5, 2023. Its annual dividend of $0.45 yields 3.77% on current prices, which is significantly higher than its four-year average of 1.68%.
AAN’s revenues increased 31.2% year-over-year to $593.38 million in the fiscal third quarter that ended September 30, 2022. Its gross profit grew 4.6% from the year-ago quarter to $297.75 million, while its adjusted free cash flow improved 431.2% year-over-year to $50.07 million. The company’s non-GAAP net earnings and net earnings per share amounted to $9.67 million and $0.31, respectively.
Street expects the company’s revenue to grow 22% year-over-year to $2.25 billion in the current fiscal year ending December 2022. Its EPS is expected to be $1.99 for the current year. Additionally, the company has a remarkable earning surprise history, as it has surpassed its consensus EPS estimates in three of the trailing four quarters.
The stock has gained 22.9% over the past three months to close its last trading session at $11.95.
As expected, the company has an overall rating of B, which translates to a Buy in our proprietary rating system. AAN is also rated a B in Growth, Value, and Quality. Within the Specialty Retailers industry, it is ranked #11 out of 46 stocks.
Click here to access additional POWR Ratings for Momentum, Sentiment, and Stability for AAN.
Karat Packaging Inc. (KRT)
KRT manufactures and distributes single-use disposable products in plastic, paper, biopolymer-based, and other compostable forms used in various restaurant and food service settings. It provides food and take-out containers, bags, tableware, etc., under the Karat Earth brand.
On November 9, KRT declared a special dividend of $0.35 per share on its common stock that was payable on or around November 30, 2022.
During the fiscal third quarter that ended September 30, 2022, KRT’s net sales increased 7.1% year-over-year to $110 million. Its gross profit and operating income came in at $34.17 million and $7.91 million, up 14.7% and 47.4% from the prior-year quarter.
Analysts’ revenue estimate for the current fiscal year ending December 2022 of $427.02 million reflects a rise of 17.2% year-over-year. Likewise, its revenue estimate for the same quarter of $1.33 indicates an improvement of 32.5% from the prior-year period. Additionally, KRT has topped consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 2.6% to close its last trading session at $14.37.
This promising prospect is reflected in KRT’s POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
KRT has a B grade for Momentum, Sentiment, and Quality. It is ranked #5 out of the 22 stocks in the A-rated Industrial - Packaging industry.
Click here to see the additional POWR Ratings for KRT (Growth, Value, Stability).
RDY shares were trading at $51.81 per share on Tuesday morning, up $0.06 (+0.12%). Year-to-date, RDY has gained 0.12%, versus a -0.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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