Rising concerns over recession and rate hikes have weighed on investors’ sentiments. Amid the heightened volatility in the market, investors often favor blue-chip stocks for their stability and reputation.
However, I think this is not the right time to invest in blue chip stocks Union Pacific Corporation (UNP) and Chesapeake Energy Corporation (CHK). These stocks are trading near their 52-week lows.
While the threat of a US debt crisis might be receding fast, the litany of problems that had been temporarily overshadowed by the specter of a US default, amongst which are high inflation, rising interest rates, and sluggish growth, haven’t gone away. The economy still faces the risk of a recession.
Carsten Brzeski, global head of macro research at Dutch bank ING ING Groep N.V. (ING), said, “Even with the “worst-case scenario” off the table, “we are still looking into a scenario of a global slowdown.”
Additionally, Federal Reserve policymakers will probably hike the target range for the federal funds rate at their upcoming meeting. The members of the Federal Open Market Committee are 70.5% likely to opt for a 25 basis-point increase in the benchmark rate when they meet next month.
Moreover, according to Statista, there is a probability of 68.2% that the United States will fall into another economic recession by April 2024. This is an increase from the projection of the preceding month, where the probability peaked at 57.77%.
Stock to Hold:
Union Pacific Corporation (UNP)
UNP operates in the railroad business in the United States. The company offers transportation services for grain and grain products, fertilizers, food and refrigerated products, and coal and renewables to grain processors, animal feeders, ethanol producers, and other agricultural users; petroleum, and liquid petroleum gases.
On April 24, 2023, UNP, along with Canadian National Railway Co. (CNI) and GMXT, announced the creation of Falcon Premium intermodal service, a best-in-class Mexico-US-Canada service with a seamless rail connection in Chicago, Illinois.
On May 18, UNP declared a quarterly dividend of $1.30, payable on June 30, 2023.
The company pays an annual dividend of $5.20, which translates to a yield of 2.70% at the current price level. It has a four-year average dividend yield of 2.09%.
UNP’s forward EV/Sales of 6.13x is 285.5% higher than the industry average of 1.59x. Its forward P/S multiple of 2.39 is 110.6% higher than the industry average of 1.13.
UNP’s total operating revenues increased 4% year-over-year to $6.06 billion in the fiscal first quarter that ended March 31, 2023. Its net income remained flat at $1.63 billion and EPS increased 3.9% year-over-year to $2.67. Yet, its operating expenses increased 8% year-over-year to $3.76 billion.
UNP’s revenue is expected to decline 2.2% year-over-year to $6.13 billion for the fiscal second quarter ending June 2023. On the other hand, its EPS is expected to decline 5.3% year-over-year to $2.78 in the same quarter. Also, it has surpassed revenue estimates in three of the trailing four quarters but has failed to exceed EPS estimates in three of the trailing four quarters.
The stock has declined 14.3% over the past nine months to close the last trading session at $192.52, near its 52-week low of $183.69.
UNP’s POWR Ratings reflect its promising outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
UNP also has a C grade for Growth and Momentum. It is ranked #8 out of 15 stocks in the A-rated Railroads industry.
Click here to see the additional POWR Ratings for UNP (Stability, Sentiment, Value, and Quality).
Stock to Sell:
Chesapeake Energy Corporation (CHK)
CHK is an independent exploration and production company that engages in the acquisition, exploration, and development of properties to produce oil, natural gas, and natural gas liquids from underground reservoirs in the United States.
CHK’s forward EV/Sales of 5.07x is 77% higher than the industry average of 2.87x. Its forward P/S multiple of 2.69 is 28.4% higher than the industry average of 2.09.
During the fiscal first quarter that ended March 31, 2023, CHK’s Natural gas, oil, and NGL revenue declined 24.1% year-over-year to $1.45 billion. Production operating expenses increased 19.1% year-over-year to $131 million, while its adjusted gross margin decreased 34% year-over-year to $989 million.
CHK’s EPS is expected to decline 72% year-over-year to $4.83 in the fiscal year ending December 2023. Its revenue is expected to decline 57.3% year-over-year to $4.22 billion for the same year.
The stock has plunged 26.1% over the past six months to close the last trading session at $75.25, near its 52-week low of $68.20.
CHK’s grim prospects are reflected in its POWR Ratings. The stock has an overall D rating, which translates to a Sell in our POWR Ratings system.
CHK also has a D grade for Stability, Quality, Momentum, and Sentiment. It is ranked #82 out of 93 stocks in the D-rated Energy - Oil & Gas industry.
To access the POWR Ratings of CHK (Value and Growth), click here.
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
UNP shares were trading at $193.40 per share on Thursday morning, up $0.88 (+0.46%). Year-to-date, UNP has declined -5.33%, versus a 10.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
These 2 Blue Chip Stocks Trading Near 52-Week Lows – Is It Time to Invest? StockNews.com
