Although the Federal Reserve’s decision to leave interest rates near zero until late 2023 to support the economy has been a relief to the market, concerns over rising inflation could fuel market volatility. Also, the continued spread of the coronavirus Delta variant in several countries could spoil investor sentiment.
Despite these concerns, a continuing economic recovery and low interest rates bode well for growth stocks. So, to dodge short-term market fluctuations and generate solid long-term returns, investors are now focusing on growth stocks. This is evidenced by the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 6.8% returns over the past month.
Amid rising uncertainties regarding the sustainability of the market’s momentum, we think it could be wise to invest in stocks with solid growth attributes and strong financials. We believe the stocks of Canadian Natural Resources Limited (CNQ), Foot Locker, Inc. (FL), and Gates Industrial Corporation plc (GTES) fit the bill and are well positioned to deliver market-beating returns in the near term.
Canadian Natural Resources Limited (CNQ)
CNQ in Calgary, Canada, is an exploration, development, and production company for crude oil and natural gas. The company's exploration and production operations are centered primarily in Western Canada, the United Kingdom sector of the North Sea, and offshore Africa's Cote d'Ivoire and South Africa. North America, the North Sea, and offshore Africa are the three geographic divisions in which CNQ conducts its exploration and production activities.
Last month, CNQ, Cenvous Energy, Imperial Oil, MEG Energy and Suncor Energy announced their Oil Sands Pathways to Net Zero project initiative. The purpose of the alliance is to achieve net zero greenhouse gas (GHG) emissions from oil sands activities by 2050. It should aid Canada in fulfilling its climate goals, particularly its Paris Agreement commitments and 2050 net zero aspirations, by collaborating with the federal and provincial governments.
CNQ's net revenue increased 46.8% year-over-year to CAD6.61 billion ($5.36 billion) in the first quarter, ended March 31, 2021. Its expenses declined 17.3% year-over-year to CAD4.91 billion ($5.98 billion). Its net income came in at CAD1.38 billion ($1.12 billion) for this period, compared to a CAD1.28 billion ($1.04 billion) net loss in the first quarter of 2020. The company’s EPS amounted to CAD$1.16 ($0.94), compared to a CAD$1.08 ($0.88) loss per share in the prior year period. Its revenue and levered free cash flow have increased at CAGRs of 10.6% over the past five years and 10.2% over the past three years, respectively.
Analysts expect CNQ’s EPS to be $3.39 for the current year. A $21.47 billion consensus revenue estimate for the current year represents a 61% increase from the same period last year. The stock has gained 108.5% over the past year and 47.1% year-to-date.
It is no surprise that CNQ has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. The stock also has an A grade for Growth and Momentum, and a B for Quality. In the B-rated Foreign Oil & Gas industry, it is ranked #6 of 50 stocks.
In addition to the POWR Ratings grades we have just highlighted; you can see the CNQ rating for Stability, Sentiment and Value.
Foot Locker, Inc. (FL)
FL is an athletic footwear and clothing store operator. The company sells athletic footwear, apparel, accessories, equipment, and team branded products through its stores, e-commerce sites and mobile apps. Some of its popular brands include Lady Foot Locker, Kids Foot Locker, Runners Point, and Sidestep. FL is based in New York City.
In May, FL announced the launch of its new basketball-inspired capsule collection designed by its new creative director of its women's business, Melody Ehsani. The launch should help the company engage with customers who are passionate about fashion and basketball culture and boost its brand value.
During the first quarter, ended May 1, 2021, FL’s sales increased 83.1% year-over-year to $2.15 billion. The company reported $282 million in operating income compared to a $105 million operating loss in the prior year quarter. Its net income was $202 million for this period, compared to a $110 million net loss in the first quarter of 2020. The company’s EPS came in at $1.93, compared to a $1.06 loss per share in the prior year period. Its EPS and net income have grown at CAGRs of 41.1% and 33.2%, respectively, over the past three years.
The company's EPS is expected to grow 101.8% year-over-year to $5.67 in the current year. Analysts expect FL's revenue to increase 13.5% from the year-ago value to $8.57 billion in its fiscal year 2022. FL's stock has gained 118.9% over the past year and has surged 51.5% year-to-date.
FL's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. FL is also rated an A for Value, Growth, and Momentum. Within the A-rated Athletics and Recreation industry, it is ranked #1 of 33 stocks.
To see additional POWR Ratings for Stability, Quality, and Sentiment for FL, click here.
Note that FL is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Gates Industrial Corporation plc (GTES)
GTES is a manufacturer and distributor of specialized power transmission and fluid power systems. The Denver, Colo.-based company’s products are used in construction, agricultural, energy, automotive, transportation, general industrial, and consumer industries, among other end sectors.
Last month, GTES introduced two new thermoplastic polyurethane belts (TPU), the Gates Parabolic Pitch (GPP), in 8mm and 14mm profiles. According to the company, the new belts will improve efficiency for the customers because they are stronger, more durable, quieter, and require less maintenance.
GTES’ net sales increased 24.1% year-over-year to $881.3 million in the first quarter ended, April 3, 2021. Its operating income surged 120.2% year-over-year to $128.6 million. Its net income increased 89% from its year-ago value to $67.3 million over this period. Its EPS increased 91.7% year-over-year to $0.23. Its total assets have increased at a 2.6% CAGR over the past three years.
The company’s EPS is expected to grow 85.7% year-over-year to $1.3 in the current year. Analysts expect GTES’ revenue to increase 23.8% in its fiscal year 2021. GTES has gained 83.3% over the past year and surged 41.8% year-to-date.
It is no surprise that GTES has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Momentum, and a B for Quality, Sentiment, and Stability. In the A-rated Auto Parts industry, it is ranked #1 of 65 stocks.
Beyond the POWR Ratings grades we have just highlighted, one can view the GTES ratings for Growth, and Value.
CNQ shares were trading at $35.37 per share on Wednesday morning, down $0.01 (-0.03%). Year-to-date, CNQ has gained 47.07%, versus a 17.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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