Federal Reserve officials are hinting at several 50 basis point interest rate hikes in the coming months to rein in runaway inflation. However, most investors and analysts believe that the Fed’s monetary policy tightening could push the economy into a recession. JPMorgan Chase CEO Jamie Dimon recently warned investors of an economic hurricane. These macroeconomic headwinds should keep equity markets volatile in the near term.
The stock market rose slightly last week. But the rally was short-lived as indices fell yesterday amid growing fears of higher interest rates. Continued sales drove many quality stocks into bargain territory. Now could be a good time to bet on fundamentally sound stocks that are trading at relatively cheaper valuations. Investor interest in value stocks is evident in the iShares Edge MSCI USA Value Factor (VLUE) ETF’s 1.7% returns over the past month.
Given these factors, we think it might make sense to bet on quality value stocks Olympic Steel, Inc. (ZEUS), LyondellBasell Industries NV (LYB) and American International Group, Inc. (AIG). These stocks are trading below their intrinsic values.
Olympic Steel, Inc. (ZEUS)
ZEUS in Bedford Heights, Ohio is a metal service center company. It processes, distributes and sells metal products in the United States and abroad. The Company operates through three segments: Carbon Flat Products; Flat products in special metals; and tubular and piping products. It distributes flat rolled carbon and coated sheets, coil and plate products, aluminum and stainless steel sheets, flat bar products, premium tin products and metal tubes.
On February 18, ZEUS’ Board of Directors declared a regular quarterly cash dividend of $0.09 per share. “As reflected in our earnings releases for the first three quarters of 2021, this has been an extraordinary year with record profitability for Olympic Steel. We are pleased to share this success with our shareholders by declaring a quarterly dividend that has increased from 0, $02 per share to $0.09 per share,” said Richard T. Marabito, CEO of ZEUS.
Net sales of ZEUS increased 50.4% year-over-year to $696.33 million during the first quarter of fiscal 2022, which ended March 31, 2022. Its operating income improved 68.2% year over year to $53.12 million. Its adjusted EBITDA increased 48.1% year over year to $56.02 million. And the company’s net profit and net profit per share amounted to $37.30 million and $3.23, respectively, registering an increase of 69.5% and 69.1% compared to the period of the previous year.
In non-GAAP forward P/E terms, ZEUS is currently trading at 4.44x, 61.1% below the industry average of 11.43x. Its forward price-to-sales multiple of 0.16 is 87.5% below the industry average of 1.27x.
Analysts expect ZEUS’ revenue for its second quarter of fiscal 2022, ending June 30, 2022, to be $655.10 million, indicating a 17.8% increase from one year to the next. Shares of ZEUS have gained 65.5% over the past six months and closed yesterday’s trading session at $34.50. Its gain since the beginning of the year translates into 45.6%
ZEUS’ POWR ratings reflect this promising outlook. It has an overall rating of B, which is equivalent to Buy in our proprietary rating system. POWR ratings rate stocks on 118 separate factors, each with its own weighting.
ZEUS has a B rating for Sentiment, Value and Momentum. Within the A-rated steel industry, it is ranked No. 21 out of 32 stocks.
To see other POWR (stability, growth and quality) ratings for ZEUS, click here.
LyondellBasell Industries NV (LYB)
LYB operates as a chemical company in the United States, Germany, Mexico, Italy, Poland, France, Japan, China, the Netherlands and internationally. The Company operates through six segments: Olefins and Polyolefins Americas; Olefins and Polyolefins; Europe, Asia, International; intermediates and derivatives; advanced polymer solutions; Refining; and technology.
On May 27, LYB’s Board of Directors declared a special dividend of $5.20 per share and a quarterly dividend of $1.19 per share, which will be paid on June 13, 2022. This year marks the 12e consecutive year of steady dividend growth.
The quarterly dividend represents a 5% increase over the company’s first quarter 2022 dividend. Its management team is confident that strong demand for its products and growing investment in its asset base could generate significant cash generation.
During the first quarter of fiscal 2022, ended March 31, 2022, LYB’s sales and other operating income increased 44.9% year-over-year to $189.67 billion . Its EBITDA improved 27.4% from its value a year ago at $2.02 billion. The company’s net profit and earnings per share were $1.32 billion and $4, respectively, up 23.4% and 25.8% year-on-year.
In terms of EV/Futures, LYB is currently trading at 6.95x, which is 39.2% below the industry average of 11.43x. Its EV/Futures multiple of 0.93 is 38.5% below the industry average of 1.52x.
Analysts expect LYB’s revenue for the second quarter of fiscal 2022, ending June 30, 2022, to be $13.68 billion, an 18.4% increase from the same time in 2021. It’s no surprise that the company beat consensus revenue estimates. in each of the last four quarters. Additionally, Rue expects the company’s EPS for the fourth quarter, ending Dec. 31, 2022, to rise 75.4% year-over-year to $3.86.
The stock is up 6.1% in the past month and 35.2% in the past six months to close yesterday’s trading session at $114.31.
LYB’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
LYB has an A rating for value. Within the A-rated chemicals industry, it is ranked No. 28 out of 90 stocks.
To view additional POWR (Growth, Momentum, Stability, Quality, and Sentiment) ratings for LYB, click here.
American International Group, Inc. (IGA)
AIG in New York provides insurance products to commercial, institutional and individual customers in North America and abroad. The Company operates through two segments: General Insurance; and Life and Retirement. Its General Insurance segment offers general liability and crisis management insurance products; industrial and energy property insurance; and portfolio solutions. Its Life and Retirement segment offers indexed and fixed annuities, retail mutual funds, financial planning, advisory services and universal life insurance.
AIG’s adjusted pre-tax income increased 20.5% year-over-year to $1.51 billion in the first quarter of Fiscal 2022, ended March 31, 2022. After-tax income Adjusted Company Attributable to AIG Common Shareholders increased 16.4% year-over-year. at $1.07 billion. And its adjusted after-tax earnings per share attributable to AIG common shareholders improved 23.8% from its value a year ago at $1.30.
In terms of EV/Futures, AIG is currently trading at 1.63x, which is 42.3% below the industry average of 2.83x. Its forward price/sales multiple of 0.98 is 67% below the industry average of 2.96x.
The consensus revenue estimate of $46.67 billion for its fiscal year 2023, ending December 31, 2023, represents a 5.9% improvement over the prior year. Analysts expect the company’s EPS for next year to be $6.38, representing a 22.7% year-over-year increase. It has exceeded consensus estimates for revenue in three of the past four quarters and consensus estimates for EPS in each of the past four quarters.
The stock is up 11.8% over the past six months and 8% over the past year and closed yesterday’s trading session at $57.84.
AIG’s POWR ratings reflect a strong outlook. The stock has an overall rating of B, which translates to Buy in our POWR rating system.
AIG has a B rating for Momentum and Growth. It is ranked No. 12 out of 55 stocks in the Insurance – P&C sector.
Click here to see AIG’s POWR ratings for Sentiment, Value, Stability and Quality.
What to do next?
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Shares of ZEUS were trading at $35.56 per share on Thursday afternoon, up $1.06 (+3.07%). Year-to-date, ZEUS has gained 52.19%, compared to a -12.29% rise in the benchmark S&P 500 over the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using its fundamental approach to stock analysis, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions. After…