In addition to Fed Chair Jerome Powell’s hawkish statements last week, the recently released hotter-than-anticipated job report for February has simultaneously raised the odds for a higher rate hike this month. This weighed heavily on the investors’ sentiments. Against this backdrop, quality value stocks Honda Motor (HMC) and NetScout Systems (NTCT) might be solid buys today. Read on….
The February job report further aggravated investors’ anxieties, which showed overly hot hiring of 311,000 jobs. This raised the chances of a 50-basis-point interest rate hike by the Fed. Given the market volatilities, let us explore value stocks Honda Motor Co., Ltd. (HMC) and NetScout Systems, Inc. (NTCT), which might be solid buys for the reasons mentioned throughout the article.
Fed Chair Jerome Powell’s testimony last week, followed by yet another higher-than-anticipated job report, has raised the odds of a higher rate hike by the Fed. This was exacerbated further by the jitters in the U.S. banking space. The Dow Jones index fell by 345 points or 1.1% on Friday, the S&P 500 dropped 1.5%, and the Nasdaq Composite declined by 1.8%.
Experts anticipate such tenacious rate hikes could tip the economy into a recession. But on the flip side, expressing an opposing view, Lawrence J. White, professor of economics at the NYU Stern School of Business, said, “I tend to be an optimist and so I am thinking the Fed is going to be able to pull this off with a slowing down, maybe even a leveling of economic activity, but not the decrease that would earn the label recession.”
Given the economic headwinds and associated stock market fluctuations that are not likely to subside anytime soon, investors seem more inclined to invest in cheaper stocks. Against this backdrop, fundamentally strong value stocks HMC and NTCT might be wise additions today.
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.
On February 28, 2023, HMC and LG Energy Solution held the official groundbreaking ceremony for a new joint venture EV battery plant over two million square feet in size, to be located in Fayette County, near Jeffersonville, Ohio. Batteries generated by the venture would ensure the successful launch of HMC EVs in North America and create high-value jobs in Ohio. This should benefit HMC in the near term.
In terms of forward EV/EBITDA, HMC is trading at 7.50x, 21.2% lower than the industry average of 9.52x. Its forward EV/Sales and price/sales multiple of 0.61 and 0.36 are 47.1% and 58.9% lower than the 1.15 and 0.87 industry averages, respectively.
HMC’s sales revenue came in at ¥4.44 trillion ($32.88 billion) for the third quarter that ended December 31, 2022, up 20.3% year-over-year. Its operating profit increased 22.2% year-over-year to ¥280.49 billion ($2.08 billion). Moreover, its profit came in at ¥265.14 billion ($1.96 billion), representing a 27.7% year-over-year rise.
Street expects HMC’s revenue to grow 370.4% year-over-year to $125.65 billion for the fiscal year ending March 2023. Its EPS is expected to come in at $3.17. Moreover, it surpassed revenue consensus in three of the trailing four quarters.
Over the past three months, the stock has gained 9.3% to close the last trading session at $26.26. It has gained 4.5% over the past month.
HMC’s POWR Ratings reflect a promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In addition, it has an A grade for Value and a B for Stability and Quality. HMC is ranked #5 within the 60-stock Auto & Vehicle Manufacturers industry.
Click here to see the additional POWR Ratings for HMC (Growth, Momentum, and Sentiment).
NetScout Systems, Inc. (NTCT)
NTCT provides service assurance and cybersecurity solutions to protect digital business services against disruption. The company offers solutions to enterprise customers, government agencies, and service providers.
On February 7, NTCT announced that it had extended its leadership position in DDoS protection by expanding its Arbor Cloud attack mitigation scrubbing centers to 15 worldwide with a dedicated capacity of 15 terabits per second.
In addition, NETSCOUT added a new presence in Dubai, which allows regional enterprises and ISPs to mitigate DDoS attacks more quickly and efficiently by reducing latency.
NTCT’s 1.98x forward EV/Sales is 26.1% lower than the 2.68x industry average. Its forward EV/EBITDA and EV/EBIT multiples of 8.39 and 9.27 are 33.7% and 42.9% lower than the 12.66 and 16.22 industry averages, respectively.
NTCT’s total revenue came in at $269.54 million for its fiscal third quarter (ended December 31, 2022), up 2.8% year-over-year. Furthermore, its non-GAAP net income came in at $73.02 million, up 9.8% year-over-year, while its non-GAAP EPS came in at $1, up 12.4% year-over-year.
Analysts expect NTCT’s EPS and revenue for its fiscal fourth quarter (ending March 2023) to come in at $0.50 and $228 million, representing a 72.4% and 19.3% rise year-over-year, respectively. The company topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of NTCT have declined marginally over the past five days to close its last trading session at $27.53.
NTCT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
NTCT has an A grade for Growth and Value and a B for Quality. Within the Technology – Services industry, it is ranked #3 out of 80 stocks.
To see additional POWR Ratings for Momentum, Stability, and Sentiment of NTCT, click here.
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HMC shares fell $0.24 (-0.91%) in premarket trading Monday. Year-to-date, HMC has gained 13.82%, versus a -0.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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