With rising recession concerns and the Fed expected to continue with its rate hikes, the stock market is projected to remain highly volatile in the near term. While the market has been suffering, this provides investors with an opportunity to buy fundamentally sound stocks Subaru (FUJHY), Overseas Shipholding Group (OSG), and Genie Energy (GNE) which are now trading at attractive valuations. Keep reading.
Inflation declined in December 2022 for the sixth consecutive month after peaking in June at 9.1%. The Consumer Price Index (CPI) increased 6.5% year-over-year and declined 0.1% for the month. The Federal Reserve has been battling the price pressures with aggressive rate hikes and remains dedicated to achieving its 2% inflation target.
Money markets anticipate a rate peak of roughly 4.9%, followed by nearly a half-point rate drop by the end of 2023. However, many Fed officials have stated that rates will rise over 5%. Atlanta Fed President Raphael Bostic stated that the central bank should raise interest rates above 5% by early in the second quarter before remaining on hold for “a long time.”
Furthermore, the World Bank predicts that GDP in the United States will decrease to 0.5% in 2023, 1.9 percentage points lower than the prior prediction of 2.4%. In addition, the organization warned of a recession due to declining growth.
The market has been volatile amid the macro uncertainties and have led to several fundamentally sound stocks to trade at bargain prices. We think investors should consider adding fundamentally sound yet cheap stocks Subaru Corporation (FUJHY), Overseas Shipholding Group, Inc. (OSG), and Genie Energy Ltd. (GNE) to their portfolios in 2023.
Subaru Corporation (FUJHY)
Headquartered in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products in Japan, the rest of Asia, North America, Europe, and internationally. It operates through three segments: Automotive; Aerospace; and Others.
FUJHY’s forward EV/Sales of 0.14x is 88% lower than the industry average of 1.20x. Its forward Price/Sales multiple of 0.40 is 57.9% lower than the industry average of 0.94.
FUJHY’s EBITDA margin of 12.02% is 8.8% higher than the 11.05% industry average, while its Levered FCF margin of 3.52% is 168.4% higher than the industry average of 1.31%.
FUJHY’s revenues came in at ¥916.80 billion ($7.07 billion) for the second quarter ended September 30, 2022, up 29.8% year-over-year. Its net earnings increased 47.2% year-over-year to ¥190.96 billion ($1.47 billion). In addition, its profit increased 92.9% year-over-year to ¥50.65 billion ($0.39 billion).
FUJHY’s revenue is expected to increase 157.7% year-over-year to $30.09 billion in 2023. Its EPS is expected to grow 218% year-over-year to $1.13 in 2023. Over the past nine months, the stock has gained 6.8% to close the last trading session at $7.74.
FUJHY’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FUJHY has an A grade for Growth and Value and a B for Stability and Quality. In the Auto & Vehicle Manufacturers industry, it is ranked #6 out of 66 stocks. To see additional POWR Ratings for Sentiment and Momentum for FUJHY, click here .
Overseas Shipholding Group, Inc. (OSG)
OSG is the owner and operator of a fleet of oceangoing vessels engaged in the transportation of crude oil and petroleum products in the United States flag trade. The company serves independent oil traders, refinery operators, and government entities.
On December 8, 2022, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA for an additional three-year term commencing in December 2023.
“We believe the market continues to support attractive commercial opportunities for these vessel leases to supplement the strong and stable cash flow generation from our niche businesses,” said Sam Norton, OSG’s President, and CEO.
OSG’s trailing-12-month EV/Sales is 1.74x, 11.1% lower than the industry average of 1.96x. Its trailing-12-month Price/Sales multiple of 0.71 is 48.3% lower than the industry average of 1.38.
OSG’s trailing-12-month Levered FCF margin of 15.41% is 130.1% higher than the 6.70% industry average.
OSG’s shipping revenues came in at $123.06 million for the third quarter that ended September 30, 2022, up 31% year-over-year. Moreover, its net profit came in at $13.25 million, compared to a net loss of $16.01 million in the year-ago period. Moreover, its EPS came in at $0.15, compared to loss per share of $0.18 in the prior-year period.
Over the past year, the stock has gained 83% to close the last trading session at $3.55.
OSG’s overall A rating equates to a Strong Buy in our POWR Ratings system. It has an A grade for Momentum and Quality and a B for Growth and Value. It is ranked first among the 47 stocks in the A-rated Shipping industry.
Beyond what is stated above, we’ve also rated OSG for Stability and Sentiment. Get all the OSG ratings here.
Genie Energy Ltd. (GNE)
GNE supplies electricity and natural gas to residential and small business customers internationally. It operates in three segments: Genie Retail Energy (GRE); GRE International; and Genie Renewables.
On December 6, 2022, GNE’s Genie Solar subsidiary obtained notice to continue with its first company-owned community solar power project. Given the environmental benefits and economics driving community solar growth, GNE anticipates expanding to new sites in the coming months.
On November 30, 2022, the company acquired a portfolio of residential and small commercial customer contracts from Mega Energy. Backed by strong cash flow, this acquisition is expected to help GNE expand its footprint.
GNE’s trailing-12-month EV/ Sales of 0.59x is 85.7% lower than the industry average of 4.1x. Its trailing-12-month Price/Sales multiple of 0.81 compares with the industry average of 2.20.
GNE’s EBIT margin of 26.20% is 41.9% higher than the 18.46% industry average, while its ROCE of 43.19% is 369.1% higher than the industry average of 9.21%.
GNE’s gross profit came in at $43.14 million for the third quarter ended September 30, 2022, up 24.7% year-over-year. The company’s income from operations increased 34.8% year-over-year to $23.54 million, while its adjusted EBITDA increased 35.3% from the year-ago value to $24.50 million.
Over the past year, the stock has gained 103.4% to close the last trading session at $10.80.
It’s no surprise that GNE has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B for Growth and Momentum. GNE is ranked first among 66 stocks in the Utilities – Domestic industry. Click here to see the additional POWR Ratings for GNE (Stability, Quality, and Sentiment).
FUJHY shares were unchanged in premarket trading Wednesday. Year-to-date, FUJHY has gained 2.38%, versus a 4.01% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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