Geopolitical issues and rising inflation are causing relentless sell-offs on Wall Street. On Wednesday, the Dow Jones Industrial Average dropped 1.02%, while the S&P 500 fell 1.65%, and the Nasdaq Composite declined 3.18%. The April inflation data showed that consumer prices increased 8.3%, still close to the 40-year high of 8.5%.
The stock market has experienced a bruising year so far, as investors remained anxious about the sky-high inflation, a slowdown in economic growth, geopolitical pressures, and the COVID situation in China. However, strategists are of the opinion that there might be opportunities in the market for investors to gain. Monica Defend, head of the Amundi Institute, stated that there could be an opportunity in value stocks that might benefit from the rate environment.
We think the fundamentally strong stocks United Microelectronics Corporation (UMC), Herbalife Nutrition Ltd. (HLF), Renault SA (RNLSY), The Goodyear Tire & Rubber Company (GT), and Meritage Homes Corporation (MTH), which have declined more than 30% this year, are trading at cheap valuations and could deliver solid returns.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a semiconductor wafer foundry operating in Taiwan, Singapore, China, Hong Kong, and globally. The company offers circuit design, mask tooling, wafer fabrication, and assembly and testing services.
On April 26, mobility supplier DENSO Corporation (DNZOY) and United Semiconductor Japan Co., Ltd. (USJC), a subsidiary of UMC, announced a collaboration for producing power semiconductors at USJC’s 300mm fab located in Kuwana in Mie Prefecture, Japan. This should benefit the company by serving the growing demand for semiconductors in the automotive industry.
On February 24, UMC announced its plans to build an advanced manufacturing facility next to its existing 300mm fab (Fab12i) in Singapore. This is expected to diversify its manufacturing footprint and expand its operations in Singapore.
In terms of its forward P/E, UMC is trading at 6.84x, 69.1% lower than the industry average of 22.14x. Its forward EV/EBITDA multiple of 3.74 is 68.7% lower than the industry average of 11.92.
For the fiscal first quarter ended March 31, UMC’s operating revenues increased 34.7% year-over-year to $2.22 billion. Net income rose 102.9% from the prior-year quarter to $701 million. Earnings per ADS improved 89.9% from the same period the prior year to $0.281.
The consensus EPS estimate of $0.30 for the quarter ending June 2022 indicates a 66.7% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $2.39 billion reflects an improvement of 30.8% from the prior-year period. Moreover, UMC has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has declined 32.5% year-to-date to close yesterday’s trading session at $7.90.
UMC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates 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.
UMC has a Quality grade of A and a Growth, Value, and Momentum grade of B. In the 95-stock Semiconductor & Wireless Chip industry, it is ranked #1. The industry is rated B.
Click here to see the additional POWR Ratings for UMC (Stability and Sentiment).
Herbalife Nutrition Ltd. (HLF)
HLF operates as a nutrition solutions provider in several countries. The company’s product portfolio is in the areas of weight management, targeted nutrition, fitness, energy, and sports. The company also offers literature and other start-up kits and educational materials.
On February 24, HLF announced the opening of its Global Business Services Center in Whitefield, a suburb of Bangalore, India. The facility that houses technology, an innovation center, a quality laboratory, and a research and development facility is expected to meet the demand for its products in India and globally.
HLF’s forward P/E multiple of 6.18 is 68.5% lower than the industry average of 19.60. In terms of its forward Price/Sales, the stock is trading at 0.39x, 66.8% lower than the industry average of 1.16x.
HLF’s net cash provided by operating activities increased 18.5% year-over-year to $130.50 million in the fiscal first quarter ended March 31. Adjusted net income and adjusted EPS came in at $101 million and $0.99.
Street expects HLF’s EPS to increase 15.3% year-over-year to $5.11 in the fiscal year 2022.
The stock has declined 47.5% year-to-date to close yesterday’s trading session at $21.47.
HLF has an overall B rating, which translates to Buy in our POWR Ratings system. The stock has an A grade for Value and Quality. It is ranked #3 out of the 8 stocks in the Medical – Consumer Goods industry. The industry is rated A.
To see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment, click here.
Renault SA (RNLSY)
RNLSY, based in Boulogne-Billancourt, France, is an international designer, manufacturer, and seller of vehicles. The company operates through the segments of Automotive; AVTOVAZ; Sales Financing; and Mobility Services.
In May, RNLSY brand Mobilize set out its target of accounting for 20% of the company’s turnover in 2030. Mobilize’s growth strategy might favorably impact RNLSY.
On May 10, RNLSY announced entering into a share subscription agreement and a joint venture agreement with Geely Holding Group. The agreement would grant Geely Automobile Holdings, via its subsidiary, Centurion Industries Limited, 34.02% of the total issued share capital of Renault Korea Motors (RKM). The capital increase aligns with the company’s “Renaulution plan” and might increase its share in the South Korean domestic market through a new product portfolio.
In terms of its forward EV/Sales, RNLSY is trading at 0.99x, 9.3% lower than the industry average of 1.09x. Its forward Price/Sales multiple of 0.13 is 84.5% lower than the industry average of 0.86.
For the fiscal year 2021, RNLSY’s revenues increased 6.3% year-over-year to €46.21 billion ($48.69 billion). Net income and EPS for the year stood at €967 million ($1.02 billion) and €3.24, both registering a substantial increase over their negative year-ago values.
Analysts expect RNLSY’s revenue to increase 15.2% from the prior-year period to $12.05 billion in the fiscal quarter ending September 2022.
RNLSY’s stock has declined 32.4% year-to-date to close yesterday’s trading session at $4.64.
The stock’s promising prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
RNLSY has a Value grade of B. In the 68-stock Auto & Vehicle Manufacturers industry, it is ranked #11.
Click here to see the additional POWR ratings for Growth, Momentum, Stability, Sentiment, and Quality for RNLSY.
The Goodyear Tire & Rubber Company (GT)
GT engages in the developing, manufacturing, distribution, and sale of tires and related products and services globally. The company sells its offerings through Goodyear, Cooper, Dunlop, Debica, Sava, Fulda, Mastercraft, Roadmaster, various other house brands, and under the private-label brands.
On May 10, GT introduced a new formulation of its popular Endurance WHA waste haul tire made with a renewable soybean oil compound. The tire replaces petroleum-based materials and is sourced from leftover food applications. This aligns with the company’s sustainability target of completely replacing petroleum-derived oils by 2040.
On April 21, GT unveiled the Courser Trail and Trail HD, the Courser Quest, and Quest Plus tires, marking an expansion in its Mastercraft Courser portfolio. The new tires might add to the company’s revenue stream.
GT’s forward Price/Sales multiple of 0.16 is 82% lower than the industry average of 0.86. In terms of its forward Price/Cash Flow, the stock is trading at 2.20x, 76.2% lower than the industry average of 9.26x.
GT’s net sales increased 39.8% year-over-year to $4.91 billion in the fiscal first quarter ended March 31. Total segment operating income and adjusted net income improved 34.1% and 2.9% from the same period the prior year to $303 million and $105 million.
Street EPS estimate for the quarter ending June 2022 of $0.36 reflects a 12.5% year-over-year rise. Likewise, Street revenue estimate of $4.96 billion for the same period indicates an increase of 24.6% from the prior-year quarter. In addition, GT has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has declined 47.2% year-to-date to close yesterday’s trading session at $11.26.
GT has an A grade for Value and a B grade for Growth. It is ranked #28 out of 69 stocks in the Auto Parts industry.
To see the additional POWR Ratings for Momentum, Stability, Sentiment, and Quality, click here.
Meritage Homes Corporation (MTH)
MTH is a designer and builder of single-family homes in the U.S. The company operates through the two broad segments of Homebuilding and Financial Services. It engages in the acquisition and development of land and construction and sale of homes for first-time and first move-up buyers.
On February 24, MTH announced expanding its business operations to Salt Lake City, Utah. “We have had Salt Lake City in our sights for quite a while and with its steady growth and solid in-migration, it fits the profile for our successful affordable homes markets,” said Phillippe Lord, chief executive officer of MTH.
In terms of its forward P/E, MTH is trading at 2.85x, 76.3% lower than the industry average of 11.99x. Its forward non-GAAP PEG multiple of 0.09 is 89.4% lower than the industry average of 0.84.
For the fiscal first quarter ended March 31, total closing revenue increased 18.7% year-over-year to $1.29 billion. Net earnings rose 64.8% from the same period the prior year to $217.25 million, while earnings per common share improved 68.3% from the prior-year period to $5.79.
The consensus EPS estimate of $5.89 for the quarter ending June 2022 indicates a 35.1% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $1.37 billion reflects an improvement of 7% from the prior-year period. Additionally, MTH has beaten consensus EPS estimates in each of the trailing four quarters.
MTH’s shares have declined 35.9% year-to-date to close yesterday’s trading session at $78.22.
MTH has an overall rating of B, which equates to Buy in our proprietary rating system.
MTH has a Growth, Value, and Sentiment grade of B. It is ranked #4 out of the 24 stocks in the Homebuilders industry. The industry is rated B.
In addition to the POWR Rating grades we’ve stated above, one can see MTH ratings for Momentum, Stability, and Quality here.
UMC shares were trading at $7.96 per share on Thursday afternoon, up $0.06 (+0.76%). Year-to-date, UMC has declined -31.97%, versus a -17.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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