As the Fed’s aggressive monetary policy resulted in slightly cooling inflation last month, investors are hoping for smaller rate hikes going forward. But with a recession expected to hit the economy next year, we think fundamentally sound stocks Pfizer (PFE), Flowers Foods (FLO) and Xperi (XPER), which are rated Strong Buy in our proprietary rating system, could be worth owning. Continue reading.
The central bank’s reference interest rate for overnight loans is currently within a target range of 3.75%-4.00%. Investors overwhelmingly expect a 50 basis point rate hike at the Fed’s next meeting as inflation showed signs of cooling.
The Fed’s most aggressive monetary tightening campaign since the 1980s has so far had a fairly limited effect on overall demand. But, latest data shows that business activity fell for a fifth month in November, and applications for unemployment benefits rose last week to a three-month high. This indicates that some more resilient parts of the economy have begun to soften.
Additionally, as debate widened over the implications of the US central bank’s rapid tightening of monetary policy, a significant majority of policymakers at the Federal Reserve’s meeting earlier this month agreed that it would “probably be appropriate soon” slow down the pace of interest rate increases.
Given this backdrop, we believe fundamentally strong stocks Pfizer Inc. (PFE), Flowers Foods, Inc. (FLO), and Xperi Inc. (XPER) could be worth owning as we head into 2023. These stocks are rated a Strong Buy in our proprietary rating system.
Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, distributes and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas. The company serves wholesalers, retailers, hospitals, clinics, public agencies, as well as centers for disease control and prevention.
November 4, PFE and BioNTech SE (BNTX) announced updated data from a phase 2/3 clinical trial showing a robust neutralizing immune response one month after a 30-µg booster dose of the companies’ Omicron BA.4/BA.5 customized bivalent covid-19 vaccine.
These data highlight the potential benefit of the bivalent vaccine for all populations regardless of prior SARS-CoV-2 infection. This marks a significant achievement for the companies in the development of the Covid-19 vaccines.
On November 3, 2022, PFE’s investigational cancer immunotherapy, elranatamab, received Breakthrough Therapy Designation from the US Food and Drug Administration (FDA) for the treatment of people with relapsed or refractory multiple myeloma.
Chris Boshoff, MD, Ph.D., Chief Development Officer, Oncology and Rare Disease, Pfizer Global Product Development, said: “This marks Pfizer’s twelfth FDA Breakthrough Therapy Designation in Oncology, a testament to our relentless commitment to developing transformational cancer medicines in areas with great unmet need.”
On September 22nd, PFE declared a quarterly dividend of $0.40 per share on its common stock, payable to shareholders on December 5th. Its annual dividend of $1.60 yields 3.26% at today’s rate. The company’s dividend payouts have increased at 5.5% CAGR over the past three years and 5.7% CAGR over the past five years. The company has a record of 12 years of continuous dividend growth.
In terms of forward EV/EBITDA, PFE is currently trading at 6.11x, which is 54.1% lower than the industry average of 13.31x. Its forward non-GAAP P/E multiple of 7.53 is 57.7% lower than the industry average of 17.79.
During the fiscal third quarter ended September 2022, PFE’s revenue from continuing operations increased 5.8% year-over-year to $8.65 billion. Non-GAAP net income attributable to Pfizer Inc.’s common shareholders rose 39.7% year-over-year to $10.17 billion, while non-GAAP EPS grew 40.2% year-over-year to 1.78 USD.
The Street expects PFE’s EPS for the current fiscal year ending December 2022 to be $6.46, indicating a 46.2% year-over-year improvement. The company’s revenue is likely to increase by 23.2% year-over-year to $100.15 billion in the same year. In addition, PFE has topped consensus EPS estimates in each of the last four quarters.
The stock has gained 8.7% in the past month to close its last trade at $48.8.
PFE’s POWR Ratings reflects this promising view. The stock has an overall rating of A, which means a strong buy in our proprietary rating system. POWR Ratings evaluates stocks based on 118 different factors, each with its own weighting.
PFE is rated A in value and B in growth, sentiment and quality. Within Medical – Medicines industry, it is ranked number 2 out of 162 stocks. click here to see additional POWR ratings for stability and momentum for PFE.
Flowers Foods, Inc. (FLO)
FLO is a manufacturer and marketer of packaged baked goods. The company offers fresh bread, buns, rolls, snack cakes, tortillas, frozen bread and rolls. The portfolio includes brands such as Nature’s Own, Dave’s Killer Bread (DKB), Wonder, Canyon Bakehouse, Tastykake and Mrs. Freshley’s.
On November 18, FLO declared a quarterly dividend of $0.22 per share, an increase of 4.8% from the same quarter last year. This is the 81st consecutive quarterly dividend paid by the company and is due on 16 December 2022.
Its annual dividend of $0.88 yields 2.98% at today’s prices. The company’s dividend payouts have increased by 5.1% CAGR over the past three years and 5.4% CAGR over the past five years. The company has a record of 8 years of continuous dividend growth.
FLO’s forward EV/Sales multiple of 1.49 is 11.7% lower than the industry average of 1.69.
FLO’s sales increased 12.7% year-over-year to $1.16 billion for the third quarter ended October 8, 2022. Net income increased 4.3% year-over-year to $40.53 million, while EPS grew by 5.6% year-on-year. to $0.19.
Analysts expect FLO’s revenue for the fiscal fourth quarter ending December 2022 to rise 12.3% year-over-year to $1.10 billion, while EPS for the current year is expected to grow 18% year-over-year to $0.24.
FLO has rallied 9.6% in the past month to close the last trade at $29.59.
It’s no surprise that FLO has an overall rating of A, which equates to a strong buy in our POWR rating system. The share has a B grade for growth and quality. It is ranked #9 out of 82 B-rated stocks Food producers industry.
To access the additional ratings for FLO for Value, Momentum, Stability and Sentiment, click here.
Xperi Inc. (XPER)
XPER provides software and services in the United States. It provides consumers with a seamless end-to-end entertainment experience, from selection to consumption, at home, in the car and on the go. The company has three business categories: Pay TV, Consumer Electronics; Connected Car; and media platform.
On October 10, XPER celebrated its first day of trading as an independent company on the New York Stock Exchange.
Jon Kirchner, CEO of XPER, said: “Today we stand as an independent company with a strong balance sheet, a leadership team with significant tenure and an exciting path to significant growth and profitability. The realization of this strategic milestone is the result of years of continuous effort.”
In terms of forward price/sales, XPER is currently trading at 0.88x, which is 64.9% lower than the industry average of 2.50x. Forward EV/sales multiple of 0.70 is 73.1% lower than the industry average of 2.59.
XPER’s revenue increased 3.3% year-over-year to $121.64 million for the third quarter ended September 30, 2022. For the nine months ended September 30, net cash from financing activities rose 115.3% from the same period last year, while cash and cash equivalents at the end of the nine months grew 68.3% year-on-year.
XPER’s revenue is likely to grow 7.7% year-over-year to $535.32M in the next fiscal year ending December 2023. EPS is projected to grow 88% year-over-year in the next year.
Shares fell marginally intraday to end the last trade at $10.32.
XPER’s strong fundamentals are reflected in the POWR ratings. The share’s overall A rating indicates a strong buy in our proprietary rating system. It has a B grade in growth, sentiment and quality. Within B-rated Semiconductor and wireless chip industry, it is ranked number 3 out of 92 stocks.
In addition to the POWR ratings above, XPER is also rated for value, stability and momentum. Get all XPER rankings here.
The PFE share was unchanged in pre-market trading on Thursday. So far this year, PFE has fallen -14.59%, against a -14.29% rise in the benchmark S&P 500 over the same period.
About the author: Kritika Sarmah
Her interest in risky instruments and passion for writing turned Kritika into an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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