While the job growth in the US indicates resilience in the economy, it may complicate the Federal Reserve’s efforts to control inflation, which remains above the target rate of 2%. Despite the headwinds, robust stocks Lear Corporation (LEA) and Fiesta Restaurant Group, Inc. (FRGI) look poised to outperform the market this month and could be worth buying.
The major indexes rebounded Friday, back near 2023 highs. The Dow Jones Industrial Average ended sharply higher on Friday, rallying 1.9% to close at 33,674.38. NASDAQ increased by 2.3% to 12,235.41, and S&P 500 rose by 1.9% to 4,136.25.
Ed Moya, senior market analyst at Oanda, believes that while stocks rallied Friday, they might not maintain momentum over the medium term.
Moreover, US jobs growth was stronger than expected in April, showing the resilience of the economy even as the Federal Reserve signaled it was “getting close” to pausing its cycle of interest rate rises.
The US added 253,000 non-farm jobs last month, according to the Bureau of Labor Statistics on Friday. The largest economy has reported strong job numbers, which may cause volatility in the stock market and complicate the Federal Reserve’s efforts to control inflation.
Also, the annual inflation rate in the US slowed for a ninth consecutive period to 5% in March of 2023, the lowest since May of 2021, from 6% in February, and below market forecasts of 5.2%. However, the Fed’s target of a 2% inflation rate is still a faraway goal.
Take a look at the stocks mentioned above:
Lear Corporation (LEA)
LEA designs, develops, engineers, manufactures, assembles, and supplies automotive seating, and electrical distribution systems and related components for automotive original equipment manufacturers in North America, Europe, Africa, Asia, and South America.
On May 6, 2023, LEA announced it had completed its acquisition of I.G. Bauerhin (IGB), further expanding the company’s suite of in-vehicle comfort technologies.
LEA’s forward EV/Sales of 0.79x is 29% lower than the industry average of 1.11x. Its forward Price/Sales multiple of 0.47 is 44.4% lower than the industry average of 0.84.
Its trailing-12-month asset turnover ratio of 1.53x is 50.4% higher than the 1.02x industry average. Its trailing-12-month return on capital of 6.86% is 8.3% higher than the 6.34% industry average.
The company pays an annual dividend of $3.08, which translates to a yield of 2.49% at the current price level. It has a four-year average dividend yield of 1.71%. Its dividend payments have grown at a CAGR of 10.7% and 7% over the past three and five years, respectively.
During the fiscal first quarter ended April 30, 2023, LEA’s net sales increased 12.2% year-over-year to $5.85 billion. Net income attributable to LEA grew 190.7% year-over-year to $143.6 million, while net income per share attributable to LEA increased 193.9% year-over-year to $2.41.
LEA’s EPS is expected to increase 47.6% year-over-year to $2.64 for the fiscal second quarter ending June 2023. The company’s revenue for the same quarter is expected to increase 11.6% year-over-year to $5.66 billion. Additionally, it has topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Shares of LEA have gained 3.9% intraday to close the last trading session at $123.60.
LEA’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Value, and Sentiment. It is ranked #23 out of 60 in the A-rated Auto Parts industry.
Beyond what is stated above, we’ve also rated LEA for Quality, Stability, and Momentum. Get all LEA ratings here.
Fiesta Restaurant Group, Inc. (FRGI)
FRGI owns, operates, and franchises fast-casual restaurants. It operates its fast-casual restaurants under the Pollo Tropical brand.
FRGI’s forward EV/Sales of 0.79x is 29% lower than the industry average of 1.11x. Its forward Price/Sales multiple of 0.47 is 44.4% lower than the industry average of 0.84.
Its trailing-12-month asset turnover ratio of 1.08x is 6.3% higher than the 1.02x industry average. Its trailing-12-month CAPEX/Sales of 5.02% is 56.9% higher than the 3.20% industry average.
FRGI’s total revenues rose 9.3% year-over-year to $97.62 million in the fourth quarter that ended January 1, 2023. The company’s net loss decreased 13.9% year-over-year to $4.07 million, while its loss per common share decreased 15.8% year-over-year to $0.16.
Street expects FRGI’s revenue for the fiscal first quarter ended March 2023 to increase 8% year-over-year to $103.26 million. The company’s EPS is expected to be $0.02 for the same quarter.
The stock has gained 18.4% over the past year to close the last trading session at $7.46.
FRGI’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
FRGI has a B grade for Growth, Momentum, Sentiment, and Value. It is ranked #9 out of 45 stocks in the A-rated Restaurants industry.
Click here to see the additional POWR Ratings for FRGI (Quality and Stability).
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LEA shares were trading at $124.42 per share on Monday morning, up $0.82 (+0.66%). Year-to-date, LEA has gained 0.88%, versus a 8.18% 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.
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