Since inflation remains comparatively higher and rate hikes seem far from over, anxieties have been soaring over an impending recession. Amid such volatilities, let us probe into cheap stocks Albertsons Companies, Inc. (ACI), Overseas Shipholding Group, Inc. (OSG), and Rave Restaurant Group, Inc. (RAVE), which could be solid additions to one’s portfolio.
Robust consumer spending amid high prices and a tight labor market has created significant pressure on the stock market. This was further aggravated by the Fed’s hawkish comments about potential rate hikes since inflation remains far above the Fed’s target range of 2%. Such persistent rate hikes could tip the economy into a recession.
On the one hand, economists expect a “mild recession,” while on the other, some believe a “rolling recession” is on the horizon. Moreover, with investor sentiments quashed, January’s market rally has lost steam and is feared to give more pain to investors in the near term, according to Morgan Stanley (MS).
A team of strategists led by Michael Wilson, Chief U.S. Equity Strategist and Chief Investment Officer at MS, cautioned, “Given our view on earnings, March is a high risk month for the bear market to resume.”
Furthermore, a recent Gallup poll shows Americans’ pessimism. A record-high 48% of U.S. adults predict a market slump in the near term, and 67% anticipate increasing inflation in the first half of 2023.
Amid such volatility, investors might add fundamentally sound dirt-cheap stocks, ACI, OSG, and RAVE, to their portfolios in March 2023.
Albertsons Companies, Inc. (ACI)
ACI is engaged in the operation of food and drug stores in the United States. It offers grocery, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
On February 6, ACI announced the pricing of its private offering of $750 million aggregate principal amount of its 6.50% senior notes due 2028. ACI intends to use the net proceeds from the offering, together with cash on hand, to repay in full all $750 million outstanding of its 3.5% senior notes due 2023, which are scheduled to mature on February 15, 2023, and pay fees and expenses related to the refinancing and the issuance of the notes.
On January 10, ACI declared a dividend for the fourth quarter of the fiscal year 2022 of $0.12 per share of common stock, paid on February 10, 2023. This reflects the cash generation ability of the company.
ACI’s trailing-12-month levered FCF margin of 6.97% is 175.8% higher than the industry average of 2.53%. Also, its trailing-12-month ROCE of 81.65% is 728.7% higher than the 9.85% industry average.
In terms of forward EV/Sales, ACI is trading at 0.29x, 83.1% lower than the industry average of 1.73x. Its forward non-GAAP P/E of 6.16x is 67.4% lower than the industry average of 18.89x.
ACI’s net sales and other revenue increased 8.5% year-over-year to $18.15 billion in the fiscal third quarter that ended December 3, 2022. Its gross margin grew 6% from the year-ago value to $5.12 billion.
The company’s adjusted net income came in at $505.10 million, representing an increase of 10.5% year-over-year, while its adjusted net income per Class A share rose 10.1% year-over-year to $0.87.
ACI’s revenue is expected to increase 1.5% year-over-year to $23.66 billion in the fiscal first quarter ending May 2023. Its EPS is expected to come at $0.92 for the same quarter. It surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has declined 3.2% over the past five days to close the last trading session at $19.87.
ACI’s POWR Ratings reflect its solid prospects. 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.
It has a B grade for Value, Quality, and Sentiment. Within the A-rated 39 stock Grocery/Big Box Retailers industry, it is ranked #6.
In addition to the POWR Ratings we have mentioned above, click here to see the other ratings of ACI for Growth, Momentum, and Stability.
Overseas Shipholding Group, Inc. (OSG)
OSG is the owner and operator of a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products in the U.S. flag trade. The company serves independent oil traders, refinery operators, and government entities.
On December 8, 2022, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA for an additional three-year term commencing in December 2023.
“We believe the market continues to support attractive commercial opportunities for these vessel leases to supplement the strong and stable cash flow generation from our niche businesses,” said Sam Norton, OSG’s President, and CEO.
On November 15, 2022, the company announced the purchase of $5 million shares of its common stock from Cyrus Capital at $2.86 per share. The price paid in this share purchase equates to an enterprise value of roughly 4.5 times the expected adjusted EBITDA for 2022, an implied valuation considered very attractive for OSG.
Its trailing-12-month Price/Sales multiple of 0.74 is 39.6% lower than the industry average of 1.23.
OSG’s revenue has grown at 8.4% and 1.3% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 17.9% and 33.3% CAGRs, respectively, over the past three years.
OSG’s shipping revenues increased 30.9% year-over-year for the third quarter that ended September 30, 2022, to $123.06 million. The company’s net income came in at $13.25 million, compared to a net loss of $16.01 million in the year-ago period. Also, its EPS came in at $0.15, compared to a loss per share of $0.18 in the prior-year period.
Over the past three months, the stock has gained 28.1% to close the last trading session at $3.74. Over the past month, it has gained 15.1%.
It is no surprise that OSG has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Momentum and a B for Growth, Value, Sentiment, and Quality. In the 46-stock A-rated Shipping industry, it is ranked first.
Click here to see the additional rating of OSG for Stability.
Rave Restaurant Group, Inc. (RAVE)
RAVE and its subsidiaries operate and franchise pizza buffets, delivery/carry-out (delco), and express restaurants under the Pizza Inn trademark in the United States and internationally. It operates through three segments: Pizza Inn Franchising; Pie Five Franchising; and Company-Owned Restaurants.
In terms of trailing-12-month P/E, RAVE is trading at 3.45x, 78.6% lower than the industry average of 16.12x. Its trailing-12-month PEG multiple of 0.01 is 97.2% lower than the industry average of 0.41.
RAVE’s trailing-12-month net income margin and ROTC of 70.13% and 60.9% are significantly higher than the industry averages of 4.62% and 4.18%, respectively. Moreover, its levered FCF margin of 14.31% is 841.5% higher than the industry average of 1.52%.
RAVE’s revenues came in at $2.87 million for the fiscal quarter that ended December 25, 2022, up 6.3% year-over-year. Its income before taxes increased 5.9% year-over-year to $488 thousand.
Its adjusted EBITDA for the same quarter stood at $615 thousand, up 8.8% year-over-year. Its net income attributable to common shareholders and net income per share came in at $348 thousand and $0.02, respectively.
Over the past year, the stock has gained 49.1% to close the last trading session at $1.58. It has gained 32.8% over the past six months.
RAVE’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
In addition, it has an A grade for Quality and a B for Value and Sentiment. RAVE is ranked #4 out of 46 stocks in the B-rated Restaurants industry.
Click here for the additional POWR Ratings for RAVE (Growth, Momentum, and Stability).
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ACI shares were unchanged in premarket trading Friday. Year-to-date, ACI has declined -3.65%, versus a 4.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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