Because a significant improvement in employment and record GDP growth has convinced Fed Chairman Jerome Powell to start bond tapering this year, the central bank doesn’t intend to hike benchmark interest rates in the near term. Consequently, the Nasdaq Composite and S&P 500 hit their all-time highs on Monday. However, amid rising inflation, which the Fed deems “transitory,” it could be risky to bet on high-flying stocks even if they possess fundamental strength. That’s because any correction experienced by the market could lead to a significant price decline for these stocks on profit taking.
So, we think it could be wise to bet on stocks that are trading at discounts to their peers despite possessing fundamental strength. The current valuations of BASF SE (BASFY), Hitachi, Ltd. (HTHIY), Suzuki Motor Corporation (SZKMY), Covestro AG (COVTY), and Vishay Intertechnology, Inc. (VSH) have yet to increase to match their growth potential. So, it could be wise to bet on these stocks now.
BASF SE (BASFY)
BASFY is a Germany-based company that offers a variety of chemical products chemical, automotive, construction, agriculture, oil, plastics, electrical, electronics, furniture, and paper industries worldwide. It operates through six segments: Chemicals; Materials; Industrial Solutions; Surface Technologies; Nutrition & Care; and Agricultural Solutions.
On August 31, 2021, BASF and Ningbo Shanshan Co., Ltd., a China-based manufacturer of lithium battery materials, formed the joint venture, BASF Shanshan Battery Materials Co., Ltd., to grow its footprint on the rapidly growing electric vehicle (EV) market in China, while serving global consumer electronics and energy storage segments. BASF and Shanshan plan to develop an annual cathode active materials (CAM) capacity of 90 kilotons by 2022.
BASFY’s BASF Polska has signed a two-year contract with PGE Obrót S.A., the largest electricity supplier in Poland, to purchase electricity produced entirely from renewable energy sources--mainly wind--to power its Mobile Emissions Catalysts plant that provides modern solutions for exhaust gas treatment for the light-duty and heavy-duty segments. This is part of BASFY’s strategy to achieve climate neutrality by 2050.
BASFY’s sales revenue increased 55.8% year-over-year to €19.75 billion ($23.30 billion) in its fiscal second quarter, ended June 30, 2021. The company’s gross profit came in at €5.08 billion ($5.99 billion), up 62.3% from the prior-year period. Its income from operations was €2.32 billion ($2.73 billion) for the quarter, representing a 3825.4% rise from the prior-year period. While its adjusted net income increased 727.1% year-over-year to €1.86 billion ($2.20 billion), its adjusted EPS increased 712% to €2.03 ($2.40). As of June 30, 2021, BASFY had €2.87 billion ($3.38 billion) in cash and cash equivalents.
Analysts expect BASFY’s EPS to increase 68.3% year-over-year to $1.65 in the current year. The $87.33 billion consensus revenue estimate for the current year reflects a 22.3% increase year-over-year. BASFY surpassed the Street’s EPS estimates in each of the four trailing quarters. The stock has gained 26.8% in price over the past year to close yesterday’s trading session at $19.34.
In terms of forward EV/Sales, BASFY is currently trading at 1.06x, which is 38.7% lower than the 1.73x industry average. In terms of forward Price/Sales, BASFY is currently trading at 0.82x, which is 41.9% lower than the 1.42x industry average.
BASFY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
BASFY has an A grade for Value, and a B grade for Stability, Growth, and Quality. In the A-rated, 95-stock Chemicals industry, it is ranked #7.
To see additional POWR Ratings for Momentum and Sentiment for BASFY, click here.
Hitachi, Ltd. (HTHIY)
Headquartered in Tokyo, Japan, HTHIY manufactures and distributes communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics. It provides information technology, energy, industry, mobility, and smart life solutions internationally.
In an announcement on August 30, the damping force adjustment absorber produced by Hitachi Astemo Co., Ltd., HTHIY, and Honda Motor Company’s (HMC) joint venture technology company manufacturing auto components, co-developed with Aisin Corporation, a Japan-based producer of auto components and systems, was adopted by Toyota Motor Corporation (TM) for its new Land Cruiser. This jointly developed suspension adjusts the damping force using separate mechanisms, enabling more precise control, thus giving a higher level of maneuverability and a more comfortable driving experience.
On August 20, HTHIY’s Hitachi ABB Power Grids won an order to supply its Grid-eMotion Fleet smart-charging infrastructure solution to Svealandstrafiken, the public transport operator in Västerås, Sweden, thus, enabling Sweden to sustainably expand its electric bus fleet as part of its Paris Agreement commitment of net zero emissions by 2045. HTHIY is looking forward to a long-term partnership with Svealandstrafiken.
In the fiscal first quarter, ended June 30, 2021, HTHIY’s revenues increased 48.5% year-over-year to $21.33 billion. The company’s gross profit was $5.20 billion, up 39% from the prior-year period. Its adjusted operating income increased 123.5% year-over-year to $1.18 billion. The company had $10.47 billion in cash and cash equivalents as of June 30, 2021.
A $14.45 consensus EPS estimate for the current year reflects a 51.4% improvement from the prior-year period. Likewise, the $88.27 billion consensus revenue estimate or the current year indicates a 471.2% rise from the year-ago period. Furthermore, HTHIY has surpassed consensus EPS estimates in three of the four trailing quarters. HTHIY’s EPS is expected to grow at a 13% rate per annum over the next five years.
The stock has gained 65.8% over the past year and 4.7% over the past three months. HTHIY has gained 8.6% in price to close yesterday’s trading session at $110.30.
HTHIY’s 0.82x forward EV/Sales is 57.9% lower than the 1.94x industry average. In terms of forward Price/Sales, HTHIY is currently trading at 0.62x, which is 60.3% lower than the 1.55x industry average.
HTHIY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to Strong Buy. In addition, HTHIY has an A grade for Growth and Value, and a B grade for Sentiment and Stability. It is ranked #9 of 91 stocks in the B-rated Industrial - Equipment industry.
In addition to the POWR Rating grades I’ve highlighted, one can see HTHIY’s ratings for Momentum and Quality here.
Click here to check out our Industrial Sector Report for 2021
Suzuki Motor Corporation (SZKMY)
Based in Japan, SZKMY manufactures and sells automobiles, motorcycles, related products, and marine products worldwide. It offers mini-vehicles, sub-compact vehicles, standard-sized vehicles, all-terrain vehicles, outboard motors, motorized wheelchairs, electro senior vehicles, and houses.
As per its July 2021 report, SZKMY has achieved a 115.6% year-over-year increase in its global production to 264,152 units.
On July 21, 2021, SZKMY and Toyota Motor Corporation’s (TM) Daihatsu Motor Co., Ltd. subsidiary joined the Commercial Japan Partnership (CJP) commercial vehicle project to accelerate their carbon neutrality initiatives in mini vehicles through the dissemination of CASE technologies and services. Expanding CJP to include mini-vehicles with the participation of SZKMY and Daihatsu should l enable the promotion of improved integrated logistics efficiency spanning from large trucks to mini-commercial vehicles.
SZKMY’s net sales for the fiscal first quarter, ended June 30, 2021, increased 98.8% year-over-year to ¥845.35 billion ($7.66 billion). The company’s gross profit came in at ¥216.17 billion ($1.96 billion), up 54.7% from the prior-year period. Its operating profit was ¥54.47 billion ($493.62 billion) for the quarter, representing a 4096.2% from the prior-year period. SZKMY’s net profit amounted to ¥108.18 billion, compared to a ¥550 million ($4.98 million) loss from the same period last year. As of June 30, 2021, the company had ¥949.94 billion ($8.61 billion) in cash and cash equivalents.
Analysts estimate SZKMY’s revenue to be $32.64 billion for the current year, representing a 109.2% rise from the prior-year period. Also, the company beat the Street’s revenue estimates in each of the trailing four quarters.
In terms of forward EV/Sales, SZKMY’S 0.60x is 60.9% lower than the 1.53x industry average. In terms of forward Price/Sales, SZKMY is currently trading at 0.64x, which is 49.6% lower than the 1.28x industry average. SZKMY has gained 6.2% in price over the past month and ended yesterday’s trading session at $172.28.
It’s no surprise that SZKMY has an overall A rating, which translates to Strong Buy in our POWR Ratings system. In addition, the stock has an A grade for Growth and Value, and a B grade for Quality. It is ranked #1 of 63 stocks in the Auto & Vehicle Manufacturers industry.
Click here to see additional POWR Ratings for Momentum, Sentiment, and Stability for SZKMY.
Click here to check out our Automotive Industry Report for 2021
Covestro AG (COVTY)
COVTY is a Germany-based company that develops, produces, and markets polymer materials for various industries. The company operates through three segments: Polyurethanes; Polycarbonates; and Coatings, Adhesives, Specialties (CAS). It markets its products through trading houses and distributors.
On July 29, 2021, COVTY signed an agreement with H.B. Fuller, one of the world’s largest manufacturers of industrial adhesives, to supply its ISCC-Plus Certified mass-balanced renewable raw materials to be used in the automotive, wood, composite, and textile industries. By gradually converting their production to alternative raw materials, both companies aim to replace fossil materials and make their value chains more sustainable.
On July 27, COVTY introduced a new market-driven, user-oriented approach to drive the adoption of biobased solutions within the paints and coatings industries by resins that base up to 52% of their carbon content on plant material. Because the environmental impact of fossil-based products is creating an unprecedented demand for sustainable products and brands, COVTY’s application of unique Decovery resin technology should open new horizons for innovation and sustainability in paint and coating solutions.
For the fiscal second quarter, ended June 30, 2021, COVTY’s sales increased 83.5% year-over-year to €3.96 billion ($4.68 billion). The company’s gross profit came in at €1.14 billion ($1.35 billion), up 237.2% from the year-ago period. Its EBIT came in at €607 million ($717.59 million) for the quarter, versus a €68 million ($80.39 million) loss in the prior-year period. COVTY’s net income amounted to €450 million ($531.98 million), compared to a €53 million ($62.66 million) loss in the year-ago period. Its EPS came in at €2.32 ($2.75), versus a €0.28 ($0.33) loss per share in the prior-year period. As of June 30, 2021, COVTY had cash and cash equivalents of €856 million ($1.01 billion).
Analysts expect COVTY’s EPS to be $3.28 for the current year, indicating 117.2% growth year-over-year. A $16.58 billion consensus revenue estimate for the current year reflects a 27.5% improvement from the same period last year. COVTY beat the consensus revenue estimates in three of the four trailing quarters. COVTY has gained 35.2% in price over the past year and closed yesterday’s trading session at $32.49.
COVTY’s 0.90x forward EV/Sales is 48.2% lower than the 1.73x industry average. In terms of forward Price/Sales, COVTY is currently trading at 0.78x, which is 45.6% lower than the 1.43x industry average.
COVTY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Value, and a B grade for Growth, Momentum, and Quality. Click here to see the additional ratings for COVTY (Sentiment and Stability).
COVTY is ranked #6 of 95 stocks in the A-rated Chemicals industry.
Vishay Intertechnology, Inc. (VSH)
VSH manufactures discrete semiconductors and a broad line of passive and discrete active electronic components, particularly resistors, capacitors, inductors, diodes, and transistors worldwide. The Malvern, Pa.-based company serves industrial, computing, automotive, consumer, telecommunications, power supplies, military and aerospace, and medical end markets.
On August 23, VSH expanded its offering of high-temperature Automotive Grade IHLP low profile, high current inductors with the new Vishay Dale IHLP-2020CZ-8A device. Operating to +180 °C temperature, the device is designed for filtering and DC/DC conversion in engine and transmission control units, diesel injection drivers, ADAS, exhaust gas recycling pumps, and entertainment/navigation systems, in addition to noise suppression for motors and heating and ventilation blowers. VSH expects to gain widespread recognition across the industry with the product.
On August 18, 2021, VSH introduced the Vishay Beyschlag MFU 0603 AT, a new very fast-acting thin film chip fuse for automotive applications. This AEC-Q200 qualified fuse will be used in electric (EV) and hybrid electric (HEV) vehicles to protect voltage sensing circuits in battery management systems. VSH expects to see high demand for this device in the coming months.
VSH’s net revenues for its fiscal second quarter, ended July 3, 2021, increased 40.8% year-over-year to $819.12 million. The company’s gross profit came in at $229.27 million, representing a 75.5% year-over-year improvement. Its operating income has been reported at $125.37 million for the quarter, up 207.3% from the prior-year period. VSH’s adjusted net earnings were $89.31 million, representing a 244.3% increase from the prior-year period. Its adjusted EPS increased 238.9% year-over-year to $0.61. As of July 3, 2021, the company had $726.76 million in cash and cash equivalents.
For the current year, analysts expect VSH’s EPS to be $2.35, up 155.9% from the prior-year period. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $3.25 billion consensus revenue estimate for the current year represents a 29.8% rise from the prior-year period. Analysts expect VSH’s EPS to grow at a 23.9% rate per annum over the next five years. VSH gained 37.4% in price over the past year to end yesterday’s trading session at $21.97.
In terms of forward EV/Sales, VSH is currently trading at 0.92x, which is 77.8% lower than the 4.13x industry average. In terms of forward Price/Sales, VSH is currently trading at 0.98x, which is 76.4% lower than the 4.16x industry average.
VSH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B grade for Growth and Quality. We have also graded VSH for Stability, Sentiment, and Momentum. Click here to access all VSH’s ratings.
Of the 99 stocks in the B-rated Semiconductor & Wireless Chip industry, VSH is ranked #10.
Click here to checkout our Semiconductor Industry Report for 2021
BASFY shares were trading at $19.14 per share on Wednesday afternoon, down $0.20 (-1.03%). Year-to-date, BASFY has gained 0.58%, versus a 21.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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