Looking at the current market trends, the disinflation process will likely be slower and more painful than markets anticipate. As jitters persist about upcoming interest rate hikes to tame stubbornly high inflation, fundamentally strong stocks Nokia Oyj (NOK) and American Vanguard Corporation (AVD), with promising growth prospects, could be hand-over-fist buys this year.
After rallying early in the year, stocks have come under pressure as economic data compel investors to rethink expectations about the path of interest rates. All major indexes notched their largest weekly losses of 2023 last Friday.
Inflation worries have grown so prevalent of late that investors are now factoring in that the Fed would hike rates by a half percentage point next month as opposed to a slowdown and eventually pause later this year.
Moreover, after months of steady decline, the pace of inflation is now going sideways, as the Fed’s favored inflation gauge, The Personal Consumption Expenditure (PCE) price index, came in hotter than expected. Prices rose a whopping 5.4% in January from a year earlier.
While recent data has signaled that the U.S. economy remains strong, several economists stressed that more pain lies ahead. Cleveland Fed President Loretta Mester said that while price growth has moderated from its recent high, the overall pace of inflation remains too high and could require more efforts to get it on that sustainable downward path to 2%.
According to the National Association for Business Economics’ latest survey, nearly 60% of respondents believe the United States has a more than 50% shot of entering a recession in the next 12 months.
Given the economy’s befuddled state, Julia Coronado, NABE’s president, said, “Estimates of inflation-adjusted gross domestic product or real GDP, inflation, labor market indicators, and interest rates are all widely diffused, likely reflecting a variety of opinions on the fate of the economy ranging from recession to soft landing to robust growth.”
Against this backdrop, investors could buy fundamentally sound stocks NOK and AMD this year to garner significant returns.
Nokia Oyj (NOK)
NOK offers products and services for radio access networks covering technologies from 2G to 5G and microwave radio links for transport networks. This Finland-based network solution provider operates through four segments: Mobile Networks; Network Infrastructure; Cloud and Network Services; and Nokia Technologies.
On February 26, NOK announced the launch of anyRAN, a revolutionary approach to help mobile operators and enterprises choose purpose-built, hybrid, or Cloud RAN solutions regardless of business model. Through this, the company strengthens partnerships with cloud and data center infrastructure leaders, offering end customer flexibility and choice in selecting Cloud RAN solutions.
Recently, NOK won a deal with MTN South Africa to deploy its comprehensive AirScale portfolio to modernize and expand MTN’s 5G radio network for superior coverage and capacity. Additionally, it won a new 10-year 5G deal with Antina to enhance the existing 5G network infrastructure throughout Singapore.
Such deals should improve the 5G connectivity experience for businesses and consumers with high bandwidth, ultra-fast speeds, and low latency, driving digitalization and expansion of its footprint across Africa and Singapore.
On February 14, NOK and Kyndryl Holdings, Inc. (KD), the world’s largest IT infrastructure services provider, announced a three-year extension and expansion of their global network and edge partnership, with a focus on developing and delivering industry-leading LTE and 5G private wireless services and Industry 4.0 solutions to customers worldwide.
This expanding, powerful relationship between NOK and KD is a unique combination of vertical and horizontal capabilities, which offers IT, OT, and business leaders access to the innovation, tools, and expert resources they need to digitally transform their operations.
NOK’s trailing-12-month net income margin of 17.06% is 490.8% higher than the 2.89% industry average. Likewise, its trailing-12-month ROTA of 9.90% is 574% higher than the industry average of 1.47%.
NOK’s net sales increased 16.1% year-over-year to €7.45 billion ($7.88 billion) in the fourth quarter that ended December 31, 2022. Its operating profit grew 19.2% from the year-ago value to €882 million ($932.50 million). The company’s net profit for the period increased 363.5% year-over-year to €3.15 billion ($3.33 billion), while its EPS rose 366.7% from the prior-year quarter to €0.56.
Analysts expect NOK’s EPS and revenue to increase 10.9% and 9.5% year-over-year to $0.08 and $6.15 billion, respectively, in the fiscal first quarter (ending March 31, 2023). It surpassed the EPS estimates in three of the trailing four quarters. NOK has gained marginally year-to-date to close the last trading session at $4.67.
NOK’s POWR Ratings reflect this 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.
It has an A grade for Value and a B for Growth. Among the 49 stocks in the B-rated Technology - Communication/Networking industry, it is ranked #4. To see the other ratings of NOK for Momentum, Stability, Sentiment, and Quality, click here.
American Vanguard Corporation (AVD)
AVD is a diversified specialty and agricultural products company that develops and markets products for crop protection and management, turf and ornamentals management, and public and animal health. Its products include insecticides, fungicides, herbicides, soil health, plant nutrition, molluscicides, and soil fumigants, which are marketed in liquid, powder, and granular forms.
On January 17, AMGUARD Environmental Technologies, the specialty markets division of AMVAC Chemical Corporation, a wholly owned subsidiary of AVD, acquired the leading microbial cleaning products of American Bio-Systems. This should benefit the company significantly in the long run.
In the same month, the company was named a "Top 10 Precision Farming Solutions Provider" for 2022 by AgriBusiness Review magazine and is prominently featured in the publication's December 2022 edition. This recognition depicts AVD’s strong innovation and growth in the technology solutions market.
AVD’s trailing-12-month gross profit margin of 39.65% is 36.2% higher than the 29.12% industry average. Also, its trailing-12-month levered FCF margin of 5.28% is 10.9% higher than the industry average of 4.76%.
AVD’s total revenue increased 3.3% year-over-year to $152.12 million for the fiscal third quarter (ended September 30, 2022). The company’s operating income grew 25.7% year-over-year to $11.24 million, while its net income came in at $6.74 billion, representing a 22.6% year-over-year increase.
In addition, its adjusted EBITDA increased 11.4% from the year-ago value to $18.91 million. Also, its non-GAAP EPS stood at $0.86, up 27.8% year-over-year.
The consensus EPS estimate of $0.87 for the fiscal year 2022 (ended December 31, 2022) represents a 41.8% improvement year-over-year. The consensus revenue estimate of $608.15 million for the past year indicates a 9.2% increase year-over-year.
Over the past year, AVD has gained 41.4% to close the last trading session at $20.82.
AVD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Stability, Sentiment, and Quality. Within the B-rated Chemicals industry, it is ranked #2 out of 86 stocks. Click here to see the other ratings of AVD for Growth and Momentum.
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NOK shares were trading at $4.60 per share on Tuesday afternoon, down $0.07 (-1.50%). Year-to-date, NOK has declined -0.57%, versus a 3.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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