With inflation still alarmingly high and the Federal Reserve committed to battle inflation with interest rate hikes, the stock market will likely remain volatile this year. Despite the expected market turmoil, it could be worth buying fundamentally strong, inexpensive penny stocks Nokia Oyj (NOK) and trivago N.V. (TRVG), which have the potential to rise significantly over time.
Before discussing the fundamentals of these stocks, let’s evaluate why the stock market could remain under pressure this year.
The Fed has raised its benchmark fund rate eight times over the past year to its current targeted level, between 4.5%-4.75%, in an effort to curb inflation. With the latest economic data signaling persistent inflation and a resilient labor market, Fed Chairman Jerome Powell warned that interest rates are likely to head higher than central bank policymakers had earlier expected.
With the central bank expected to keep the interest rates elevated, the economy will likely enter a recession this year. This could keep the stock market highly volatile in the upcoming months.
However, that should not deter investors from investing in the quality penny stocks mentioned above. Given their strong fundamentals and solid growth prospects, it could be wise for investors to add NOK and TRVG to their portfolios.
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, global telecommunications company, NOK provides mobile, fixed, and cloud network solutions. The company operates through four segments: Network Infrastructure, Mobile Networks, Cloud and Network Services, and Nokia Technologies.
In terms of the trailing-12-month EBIT margin, NOK’s 10.95% is 86.2% higher than the 5.88% industry average. Likewise, its 21.71% trailing-12-month Return on Common Equity is 356.8% higher than the industry average of 4.75%.
On February 27, 2023, NOK announced its contract with MTN South Africa as one of its 5G Radio Access Network (RAN) equipment providers. President of Mobile Networks at NOK, Tommi Uitto, believes that this strengthens NOK’s market position in South Africa and helps MTN deliver superior 5G experiences to its subscribers.
NOK’s net sales for the fourth quarter ended December 31, 2022, increased 16.1% year-over-year to €7.45 billion ($7.91 billion). Its gross profit increased 25.8% year-over-year to €3.19 billion ($3.38 billion).
Additionally, its profit for the period increased 363.5% year-over-year to €3.15 billion ($3.35 billion), while its EPS came in at €0.56, representing an increase of 366.7% from the prior-year quarter.
Analysts expect NOK’s EPS and revenue for the quarter ending March 31, 2023, to increase 10.9% and 9.5% year-over-year to $0.08 and $6.15 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 1.7% to close the last trading session at $4.76.
NOK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Technology - Communication/Networking industry, it is ranked #4 out of 49 stocks. The stock has an A grade for Value and a B for Growth.
We have also given NOK grades for Momentum, Stability, Sentiment, and Quality. Get all NOK ratings here.
trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG, operates a hotel and accommodation search platform internationally. It offers an online meta-search for hotels and accommodation through online travel agencies, hotel chains, and independent hotels.
In terms of the trailing-12-month gross profit margin, TRVG’s 97.63% is 96.7% higher than the 49.63% industry average. Likewise, its 5.97% trailing-12-month Return on Total Capital is 68.6% higher than the industry average of 3.54%.
TRVG’s total revenue for the fourth quarter ended December 31, 2022, increased 17.7% year-over-year to €104.89 million ($110.58 million). The company’s operating income increased 34.7% year-over-year to €17.76 million ($18.72 million). Moreover, its adjusted EBITDA increased 15.3% from the prior-year quarter to €22.60 million ($23.83 million).
TRVG’s EPS and revenue for the quarter ending March 31, 2023, are expected to increase 6.5% and 26.8% year-over-year to $0.04 and $135.40 million, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 26.1% to close the last trading session at $1.69.
TRVG’s POWR Ratings reflect this positive outlook. TRVG has an overall rating of A, translating to a Strong Buy. It is ranked first out of 59 stocks in the Internet industry. It has an A grade for Quality and a B for Growth and Value.
We have also given TRVG grades for Momentum, Stability, and Sentiment. Get all TRVG ratings here.
What To Do Next?
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What gives these stocks the right stuff to become big winners, even in this brutal stock market?
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NOK shares were trading at $4.80 per share on Thursday morning, up $0.04 (+0.84%). Year-to-date, NOK has gained 3.75%, versus a 4.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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