The Fed’s persistent interest rate hikes and recent fallout from a banking crisis have triggered recessionary fears of late, causing heightened volatility in the stock market. This, however, could be an opportunity to invest in quality stocks Isuzu Motors Limited (ISUZY), GeoPark Limited (GPRK), and RCM Technologies, Inc. (RCMT), which are trading at a discount, before they soar again.
Recent turmoil in the financial sector took the market indices on a volatile ride. The equities were initially gaining ground until the unexpected collapse of the Silicon Valley Bank, followed by other banks, caused panic across the stock market, with repercussions felt throughout the month.
In yesterday’s session, growing worries about a potential recession resulted in a decline in stocks. The S&P 500 ended the day at $4,091.95, marking a 0.4% intraday decrease. The Dow Jones closed at $33,646.50, down 0.1%, equivalent to 38.29 points, while the Nasdaq Composite finished at $11,929.34, experiencing a drop of 0.9%.
As per the minutes from the Federal Open Market Committee (FOMC) meeting, staff economists anticipate the economy to take a hit. The meeting summary said, “Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year.”
Furthermore, earlier yesterday, the Labor Department reported that inflation cooled more than expected to 5% year-over-year in March. However, economists remain concerned about the challenges in fully controlling prices as core CPI, viewed as a better indicator of underlying inflation, rose 0.4% last month from February and 5.6% from a year ago.
According to the CME FedWatch Tool, the central bank will likely raise its benchmark rates again in May to a 5%-5.25% range.
Let's discuss why investing in fundamentally sound stocks ISUZY, GPRK, and RCMT, trading under $15, could be rewarding.
Isuzu Motors Limited (ISUZY)
ISUZY, headquartered in Tokyo, Japan, manufactures and sells commercial vehicles, light-duty trucks, diesel engines, and components worldwide. Its product portfolio includes heavy-duty trucks, buses, pickup trucks, tractors, and SUVs. The company also offers maintenance services, leasing, and part manufacturing.
On March 9, ISUZY and UD Trucks announced that they had teamed up to develop new heavy-duty tractor models for the Japanese market. They are also expected to collaborate on shared use of parts warehouses, joint delivery, and purchase of spare parts, and open a joint office in Singapore to strengthen the overseas business.
This partnership is expected to boost ISUZY’s global expansion and drive growth.
On March 7, the company launched full-model changes for its N-Series and F-Series trucks. ISUZY seeks to tackle complex challenges such as digital transformation and global warming while improving driver safety and convenience. This could allow the company to attract more customers and gain a competitive advantage in the logistics industry.
In terms of forward EV/Sales, ISUZY is trading at 0.50x, which is 53.7% lower than the 1.08x industry average. Also, its forward EV/EBITDA multiple of 4.87 is 48% lower than the industry average of 9.36.
ISUZY’s net sales increased 31.4% year-over-year to ¥2.34 trillion ($17.58 billion) for the nine months that ended December 31, 2022. Its operating income rose 33.2% year-over-year to ¥197.89 billion ($1.48 billion). Also, the company’s profit came in at ¥158.40 billion ($1.19 billion), a 25.3% increase year-over-year.
As of December 31, 2022, the company’s total assets stood at ¥3.02 trillion ($22.62 billion), compared to ¥2.86 trillion ($21.43 billion) as of March 31, 2022.
The consensus revenue estimate of $6.31 billion for the fourth quarter (ended March 2023) reflects an 11.7% year-over-year improvement. Also, ISUZY’s revenue for the fiscal 2024 first quarter (ending June 2023) is expected to grow 9.3% year-over-year to $5.57 billion. Moreover, the company topped its consensus revenue estimates in all four trailing quarters, which is impressive.
The stock has gained 4.3% over the past five days to close the last trading session at $11.56.
ISUZY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ISUZY has an A grade for Value and a B for Growth, Quality, and Stability. It is ranked #5 in the 58-stock Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings I’ve just highlighted, you can see ISUZY’s ratings for Sentiment and Momentum here.
GeoPark Limited (GPRK)
Based in Bogotá, Colombia, GPRK explores, develops, and produces oil and gas reserves in Chile, Colombia, Brazil, Argentina, and Ecuador. The company has a strategic partnership with ONGC Videsh to jointly acquire and invest in upstream oil and gas projects across Latin America.
On February 2, GPRK reported a net present value (after tax) of $1.80 billion for their consolidated 2022 Certified 2P Reserves, amounting to 128 million BOE. Addressing the result, GPRK’s CEO Andrés Ocampo said, “On the back of our large inventory of low-risk, low-cost and profitable reserves, once again GeoPark increased production, cash flow and shareholder returns in 2022.”
He added, "We begin 2023 uniquely positioned to continue generating value through development of our multi-year project inventory with more production and more drilling, including an extensive exploration program on proven acreage that can be quickly converted to production and cash flow and a strong commitment to return 40-50% of free cash flow to shareholders.”
In terms of forward non-GAAP P/E, GPRK is trading at 2.98x, which is 65.5% lower than the 8.63x industry average. The stock’s forward EV/EBIT multiple of 3.12 is 60.7% lower than the industry average of 7.94.
For the fourth quarter that ended December 31, 2022, GPRK’s revenue increased 14.1% year-over-year to $231 million. Its adjusted EBITDA rose 51.7% year-over-year to $132.10 million. Furthermore, the company’s operating profit grew 17.7% from the prior year’s period to $81.70 million. Its profit for the period was $52.20 million, a 41.5% year-over-year increase.
Analysts expect GPRK’s revenue to increase 3.7% year-over-year to $222 million for the second quarter ending June 2023. Likewise, the company’s EPS for the current quarter is expected to grow 4.2% year-over-year to $0.74. Shares of GPRK marginally gained intraday to close the last trading session at $11.33.
GPRK’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
GPRK has an A grade for Value and a B for Quality. It has topped the A-rated 42-stock Foreign Oil & Gas industry.
Click here to access additional GPRK ratings for Growth, Stability, Sentiment, and Momentum.
RCM Technologies, Inc. (RCMT)
RCMT provides business and technology solutions. It operates through three segments: Engineering; Specialty Health Care; and Life Sciences and Information Technology. The company’s clients come from various industries, including aerospace, defense, energy, financial services, healthcare, manufacturing, and technology.
In terms of forward non-GAAP P/E, RCMT is trading at 6.45x, 61% lower than the 16.52x industry average. Moreover, its forward EV/Sales and forward EV/EBITDA multiple of 0.45 and 4.74 are 72.1% and 55% lower than the respective industry averages of 1.60 and 10.52.
RCMT’s adjusted operating income rose 31.6% year-over-year to $6.72 million in the fourth quarter that ended December 31, 2022. Its adjusted EBITDA grew 31.7% from the year-ago value to $7.03 million. The company’s adjusted net income increased 28.7% year-over-year to $4.77 million, and its adjusted EPS stood at $0.47, up 38.2% from the prior-year quarter.
Analysts expect RCMT’s revenue to grow 9.3% year-over-year to $299.14 million in the fiscal year ending December 2024. The company’s EPS for the same period is expected to increase 19.4% year-over-year to $2.22. Furthermore, the company surpassed its consensus EPS estimates in three of the trailing four quarters.
The stock has gained 4.1% over the past five days to close the last trading session at $12.00.
RCMT’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Quality. It Is ranked #7 in the A-rated 21-stock Outsourcing - Staffing Services industry.
To see additional POWR Ratings for Growth, Stability, Sentiment, and Momentum for RCMT, click here.
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ISUZY shares were trading at $11.47 per share on Thursday morning, down $0.10 (-0.82%). Year-to-date, ISUZY has declined -1.21%, versus a 7.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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