Recent market turmoil has placed a renewed focus on company fundamentals, as former highflying technology stocks such as Netflix and Teladoc suffer severe drawdowns. So where to find stocks to watch?
Focusing on stocks that are less known among retail traders often uncovers companies with stable fundamentals and better long-term value. In today's spotlight, Hubbell offers an under-the-radar opportunity and is a stock to watch in the IBD 50.
Hubbell makes electrical wiring and power transmission systems for utility companies and construction. The company was originally founded in 1888 as a proprietorship and is currently headquartered in Shelton, Conn.
Stocks To Watch: Hubbell Reports Strong Q1 Earnings
While Hubbell's operations certainly sound mundane in a delicate economic environment, essential equipment is all the better. Furthermore, there seems to be a hidden growth story under the hood that makes Hubbell more compelling.
Despite three years of stagnant earnings and sales growth, the company's first-quarter earnings — reported Tuesday — were strong. EPS of $2.12 beat analyst estimates of $1.84, while sales of $177 million beat projections of $165 million. Growth is expected to continue. After reporting earnings of $8.32 per share in 2021, analysts expect EPS to increase to $9.21 and $10.15 in 2022 and 2023, respectively.
Need For Electrical-Grid Modernization Expected To Drive Growth
The main driver of this projected growth is the trend of further electrification and the urgent need for electrical-grid modernization in the U.S. The electrical grid is already outdated and strained. This will only increase as consumers shift from fossil fuels to cleaner electricity, placing even more strain on the system.
This necessity and expected growth — albeit modest — come on top of a stable financial track record that's unlikely to waver.
As results improve so should the company's dividend, which increased 7% this year, marking 14 straight years of dividend growth. While a 2.1% yield is still modest, it does provide significantly more income compared with the 1.3% average yield of the S&P 500.
Despite a strong demand outlook, IBD's electrical power group currently ranks 150th out of 197 industries. Nevertheless, Hubbell has been outperforming and ranks second of the 43 stocks in the group, making it a definite stock to watch.
Hubbell is forming a cup base with a relative strength line near highs and a 212.64 buy point, per MarketSmith pattern recognition. The stock this week moved above the 200-day moving average, a positive step.
