As the Fed’s aggressive monetary policy resulted in slightly cooled inflation last month, investors are hopeful of smaller rate hikes ahead. However, since a recession is 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, might be worth owning. Continue reading.
The central bank’s benchmark overnight lending rate currently sits in a target range of 3.75%-4.00%. Investors overwhelmingly expect a rate increase of 50 basis points at the Fed’s next policy 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 demand overall. However, recent data shows that business activity contracted 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 started to soften.
In addition, as debate broadened over the implications of the U.S. central bank’s rapid tightening of monetary policy, a substantial majority of policymakers at the Federal Reserve’s meeting early this month agreed it would “likely soon be appropriate” to slow the pace of interest rate hikes.
Given this backdrop, we think fundamentally strong stocks Pfizer Inc. (PFE), Flowers Foods, Inc. (FLO), and Xperi Inc. (XPER) might be worth owning as we head into 2023. These stocks are rated 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, government agencies, as well as disease control and prevention centers.
On November 4, PFE and BioNTech SE (BNTX) announced updated data from a Phase 2/3 clinical trial demonstrating a robust neutralizing immune response one month after a 30-µg booster dose of the companies’ Omicron BA.4/BA.5-adapted bivalent COVID-19 vaccine.
These data highlight the potential benefit of the bivalent vaccine for all populations regardless of previous SARS-CoV-2 infection. This marks a significant achievement for the companies in developing the Covid-19 vaccines.
On November 3, 2022, PFE’s investigational cancer immunotherapy, elranatamab, received Breakthrough Therapy Designation from the U.S. Food and Drug Administration (FDA) for treating people with relapsed or refractory multiple myeloma.
Chris Boshoff, M.D., 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 of high unmet need.”
On September 22, PFE declared a quarterly dividend of $0.40 per share on its common stock, which was payable to shareholders on December 5. Its annual dividend of $1.60 yields 3.26% on current prices. The company’s dividend payouts have increased at a 5.5% CAGR over the past three years and a 5.7% CAGR over the past five years. The company has a record of 12 years of consecutive 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 income from continuing operations improved 5.8% year-over-year to $8.65 billion. Its non-GAAP net income attributable to Pfizer Inc. common shareholders rose 39.7% year-over-year to $10.17 billion, while its non-GAAP EPS grew 40.2% year-over-year to $1.78.
Street expects PFE’s EPS for the current fiscal year ending December 2022 to be $6.46, indicating a 46.2% improvement year-over-year. The company’s revenue is likely to increase 23.2% year-over-year to $100.15 billion in the same year. Additionally, PFE has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 8.7% over the past month to close its last trading session at $48.8.
PFE’s POWR Ratings reflect this promising outlook. The stock 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.
PFE is rated an A in Value and a B in Growth, Sentiment, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #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 producer and marketer of packaged bakery foods. The company offers fresh bread, buns, rolls, snack cakes, tortillas, frozen bread, and rolls. Its 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% over the same quarter last year. This is the 81st consecutive quarterly dividend paid by the company and is payable on December 16, 2022.
Its annual dividend of $0.88 yields 2.98% on current prices. The company’s dividend payouts have increased at a 5.1% CAGR over the past three years and a 5.4% CAGR over the past five years. The company has a record of 8 years of consecutive 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 rose 12.7% year-over-year, $1.16 billion for the third quarter that ended October 8, 2022. Its net income improved 4.3% year-over-year to $40.53 million, while its EPS grew 5.6% year-over-year to $0.19.
Analysts expect FLO’s revenue for the fiscal fourth quarter ending December 2022 to increase 12.3% year-over-year to $1.10 billion, while its EPS for the ongoing year is expected to grow 18% year-over-year to $0.24.
FLO has gained 9.6% over the past month to close the last trading session at $29.59.
It’s no surprise that FLO has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The stock has a B grade for Growth and Quality. It is ranked #9 out of 82 stocks in the B-rated Food Makers 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 offers consumers a seamless end-to-end entertainment experience, from choice to consumption, in the 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, an executive team with substantial 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. Its 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 that ended September 30, 2022. For the nine months ended September 30, its net cash from financing activities rose 115.3% from the same period last year, while its cash and cash equivalents at the end of the nine months grew 68.3% year-over-year.
XPER’s revenue is likely to increase 7.7% year-over-year to $535.32 million in the next fiscal year ending December 2023. Its EPS is estimated to grow 88% year-over-year in the next year.
Its shares dipped marginally intraday to close the last trading session at $10.32.
XPER’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system. It has a B grade in Growth, Sentiment, and Quality. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #3 out of 92 stocks.
In addition to the POWR Ratings above, XPER is also rated for Value, Stability, and Momentum. Get all XPER ratings here.
PFE shares were unchanged in premarket trading Thursday. Year-to-date, PFE has declined -14.59%, versus a -14.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika 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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