As the second quarter is underway, experts are now updating their predictions to include emerging risks such as a credit crunch, commercial real-estate risks, financial sector uncertainty, and the potential for a recession.
Therefore, it could be wise to invest in quality stocks Petróleo Brasileiro S.A. – Petrobras (PBR), United Microelectronics Corporation (UMC), and North American Construction Group Ltd. (NOA), which have demonstrated strong momentum in recent times and are expected to sustain it.
The Fed has aggressively hiked interest rates over the past year to lower decades-high inflation. As a result, according to LPL Research, investors are anticipating the possibility of a US debt default as the US Treasury market shows signs of pricing it in.
Moreover, Morgan Stanley Wealth Management's CIO, Lisa Shalett, recently warned that stock-market valuations are currently precarious as investors have already priced in the potential good news that could have fueled future rallies.
She noted that despite the bear market rally in stocks, much of the good news has already been discounted, especially around the sustainability of low-interest rates that support extreme valuations, leading to a dangerous phase for investors.
Additionally, Chris Watling, the CEO of financial advisory firm Longview Economics, believes that a recession is imminent in the US, and investors should prepare for potential stock market losses.
As per Watling, the Conference Board's recent report on the US Leading Economic Index, which fell by 1.2% in March, suggests that economic weakness could soon intensify and spread throughout the US economy.
Let’s take a detailed look at the stock mentioned above:
Petróleo Brasileiro S.A. – Petrobras (PBR)
Headquartered in Rio de Janeiro, Brazil, PBR discovers, produces, and sells oil and gas in Brazil and internationally. The company operates in Exploration and Production; Refining, Transportation, and Marketing; Gas and Power; and Corporate and Other Businesses segments.
PBR’s forward non-GAAP P/E multiple of 3.90 is 54.9% lower than the industry average of 8.64. Its forward EV/EBITDA of 2.25x is 56.8% lower than the industry average of 5.21x. The stock’s forward P/S multiple of 0.65 is 48% lower than the 1.25x industry average.
PBR pays an annual dividend of $6.39 that yields 55.11% at the current market price.
PBR’s sales revenues increased 25.6% year-over-year to $30.17 billion in the fourth quarter that ended December 31, 2022. Its gross profit grew 37.8% from its prior-year quarter to $14.58 billion, while net income rose 45.8% from its prior-year quarter to $8.28 billion.
Analysts expect PBR’s EPS to amount to $0.82 in the first quarter that ended March 2023. In addition, it has an impressive earnings surprise history, surpassing the consensus revenue estimates in three of the trailing four quarters.
PBR’s shares have surged 16% over the past month to close the last trading session at $11.60. It has gained 8.9% year-to-date and is trading above its 50-day moving average of 10.99.
PBR’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PBR has an A grade for Quality and Momentum. Within the A-rated Foreign Oil & Gas industry, it is ranked #11 of 42 stocks.
Click here to see additional PBR POWR Ratings for Growth, Value, Sentiment, and Stability.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a global semiconductor foundry that operates through two segments: Wafer Fabrication and New Business. It offers high-quality IC fabrication services, focusing on logic and various specialty technologies to all electronics industry sectors.
On March 7, 2023, UMC and Infineon Technologies AG (IFNNY) announced a long-term strategic partnership agreement to improve the production capacity of the Infineon automotive microcontroller in order to service the rapidly expanding automotive market.
The high-performance microcontroller product leverages IFNNY’s proprietary eNVM (embedded non-volatile memories) technology and will be manufactured at UMC’s Singapore fab on its 40nm process.
Jason Wang, Co-President of UMC, said, "UMC’s shipments of automotive products have tripled since 2019, and we expect this strong momentum to continue as demand for automotive semiconductors rises.”
UMC’s forward non-GAAP P/E multiple of 10.91 is 45.9% lower than the industry average of 20.16. Its forward EV/EBITDA of 4.67x is 65% lower than the industry average of 13.34x.
UMC’s operating revenues increased 14.8% year-over-year to NT$67.84 billion ($2.21 billion) for the fourth quarter that ended December 31, 2022. Its gross profit increased 26.1% year-over-year to NT$29.12 billion ($950.14 million).
The company’s net income increased 19.6% year-over-year to NT$19.07 billion ($622.23 million), while its EPS came in at NT$1.54, representing an increase of 18.5% year-over-year.
Street expects UMC’s EPS to come in at $0.17 in the fiscal first quarter that ended March 2023. The company has exceeded revenue estimates in all four trailing quarters, which is remarkable.
UMC’s shares have gained 29.7% over the past six months and 23.9% year-to-date to close the last trading session at $8.09. It is currently trading above its 200-day moving average of 7.20.
UMC’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Momentum and Quality and a B for Value and Stability. UMC is ranked on top of 91 stocks in the Semiconductor & Wireless Chip industry.
To see the additional POWR Ratings for UMC (Sentiment and Growth), click here.
North American Construction Group Ltd. (NOA)
Headquartered in Acheson, Canada, NOA provides equipment maintenance, mining, and heavy construction to its clients in resource development and industrial construction sectors in the U.S., Canada, and Australia. The company operates through two broad divisions: Heavy Construction & Mining; and Equipment Maintenance.
NOA’s forward EV/EBITDA of 3.88x is 25.6% lower than the industry average of 5.21x. The stock’s forward P/S multiple of 0.79 is 37.2% lower than the 1.25x industry average.
On February 14, 2023, NOA’s Board of Directors approved a 25% increase to the dividend rate to CAD0.40 ($0.30) per annum. The company paid a quarterly dividend of CAD0.10 ($0.74) on April 7, 2023.
The company’s annual dividend translates to a dividend yield of 1.58% at the current price, compared to the four-year average dividend yield of 1.24%. It has grown its dividend payments at a CAGR of 34.6% over the past three years.
During the fiscal fourth quarter that ended December 31, 2022, NOA’s combined revenue increased 36.3% year-over-year to CAD320.11 million ($236.39 million). Its combined gross profit rose 77.1% year-over-year to CAD57.13 million ($42.19 million).
Its adjusted EBIT and EBITDA grew 81.6% and 52.6% year-over-year to CAD45.67 million ($33.73 million) and CAD85.88 million ($63.42 million). Moreover, the company’s EPS increased 31.1% year-over-year to CAD2.15.
Analysts expect NOA’s EPS and revenue for the current fiscal quarter that ended March 2023 to increase 48.3% and 22% year-over-year to $0.59 and $168.20 million, respectively. It has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 70.1% over the past six months and 39.6% year-to-date to close the last trading session at $18.66. Also, it is trading above its 50-day and 200-day moving averages of $16.79 and $13.36, respectively.
It is no surprise that NOA has an overall A rating, which translates to Strong Buy in our POWR Ratings system.
It also has an A grade for Momentum and Sentiment and a B for Quality. NOA is ranked first among 43 stocks in the B-rated Energy – Services industry.
To access NOA’s additional POWR Ratings for Growth, Value, and Stability here.
The Bear Market is NOT Over…
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REVISED: 2023 Stock Market Outlook >
PBR shares rose $0.03 (+0.26%) in premarket trading Monday. Year-to-date, PBR has gained 8.92%, versus a 8.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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