Amid seemingly unending macroeconomic turbulence and market volatility, it could be wise to invest in quality stocks CRH plc (CRH), Engie Brasil Energia S.A. (EGIEY), and Hywin Holdings Ltd. (HYW) with momentum behind them.
March’s Producer Price Index (PPI) declined 0.5% from the prior month, registering its largest drop since April 2020. Moreover, with the Consumer Price Index (CPI) data also indicating that the cumulative effect of interest-rate hikes by the Federal Reserve has begun to cool down inflation, the likelihood of peaking of interest rates followed by a pause has recently increased.
However, with the earnings season currently underway, underwhelming earnings growth of businesses that were battered by inflation and burdened with interest rate hikes could undercut and undermine the market buoyancy.
With the tantrums of Mr. Market expected to continue in the foreseeable future, it could be wise to invest in quality stocks that are likely to keep having momentum in their favor in the foreseeable future.
Let’s take a closer look at the featured stocks.
CRH plc (CRH)
CRH is a building materials company based in Dublin, Ireland. The company operates through three segments: Americas Materials; Europe Materials; and Building Products.
On March 31, CRH announced that it had successfully completed the latest phase of its share buyback program with the repurchase of 5.9 million ordinary shares on Euronext Dublin, thereby returning a further $0.3 billion cash to its shareholders.
Since the commencement of its ongoing share buyback program in May 2018, CRH has returned a total cash of $4.3 billion to its shareholders.
On the same day, CRH also announced the commencement of the next phase of the repurchase of ordinary shares worth up to $750 million that would be carried out on the company’s behalf by UBS A.G., London Branch. This tranche is the initial stage of the wider $3 billion program announced on 2 March 2023.
While being a testament to the management's confidence in the company’s prospects, CRH’s extensive stock repurchase program would also enhance the intrinsic value of the holdings of existing shareholders.
On December 16, 2022, CRH announced the establishment of its venture capital unit, CRH Ventures. With access to a $250 million venturing and innovation fund to invest, it will partner with construction and climate technology companies operating across the construction value chain.
With this initiative, CRH aims to support the development of new technologies and innovative solutions to meet customers' increasingly complex needs and evolving trends in construction.
For the fiscal year that ended December 31, 2022, CRH’s revenue increased by 12% year-over-year to $32.72 billion, while its gross profit increased 10.4% year-over-year to $10.88 billion. During the same period, as good commercial management and further operational efficiencies offset significant cost inflation, the group’s EBITDA and operating profit from continuing operations increased by 12.5% and 16.9% year-over-year to $5.62 billion and $3.89 billion, respectively.
As a result, CRH’s profit for the financial year increased by 47.8% year-over-year to $3.87 billion. The company’s diluted earnings per ordinary share came in at $3.48, up 14.9% year-over-year.
CRH’s trailing-12-month gross profit margin of 33.25% is 14.5% above the industry average of 29.05%, while its trailing-12-month net income margin of 11.76% is 52.8% above the industry average of 7.69%. Similarly, its trailing-12-month ROCE, ROTC, and ROTA of 12.68%, 7.38%, and 8.51% compare favorably to its respective industry averages of 11.61%, 6.89%, and 5.34%.
Analysts expect CRH’s revenue for the fiscal year 2023 to increase 6.6% year-over-year to come in at $34.63 billion, while its EPS is expected to come in at $3.83. Both revenue and EPS are expected to increase by a further 3.3% and 8.3% during the next fiscal to come in at $35.77 billion and $4.15, respectively.
CRH has gained 54.6% over the past six months to close the last trading session at $49.24, 8.7% above its 100-day moving average of $45.31.
CRH’s strong fundamentals are reflected in its overall A rating, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CRH has a B grade for Quality, Momentum, Growth, Value, Stability, and Sentiment.
Unsurprisingly, CRH tops the list of 46 stocks in the A-rated Industrial - Building Materials industry.
Engie Brasil Energia S.A. (EGIEY)
EGIEY, erstwhile Tractebel Energia S.A., is controlled by ENGIE Brasil Participacoes Ltda. The company is engaged in generating and commercializing electrical energy by developing and operating power plants fired from conventional energy sources, such as hydroelectric, thermoelectric, and complementary units, small hydroelectric plants, and wind, biomass, and photovoltaic plants.
In 2022, EGIEY began the implementation of 1.6 GW of installed capacity from renewable sources, expanded activities in the transmission segment, and consolidated the decarbonization strategy with the signature of the agreement to sell Pampa Sul TPP.
For the fourth quarter of the fiscal year that ended December 31, 2022, EGIEY’s net operating revenue increased by 12% year-over-year to R$3.10 billion ($631.70 million), while its adjusted EBITDA came in at R$1.74 billion ($353.32 million).
As a result, EGIEY’s adjusted net income for the quarter increased by 10.9% year-over-year to R$904 million ($184.09 billion). Gross power production increased by 51.7% year-over-year to 5,750 MW.
EGIEY’s trailing-12-month gross profit margin of 46.94% is 24.6% above the industry average of 37.69%, while its trailing-12-month net income margin of 22.37% is 108% above the industry average of 10.75%. Similarly, its trailing-12-month ROCE, ROTC, and ROTA of 32.54%, 11.71%, and 6.97% compare favorably to its respective industry averages of 8.99%, 3.80%, and 2.50%.
EGIEY’s stock has gained 3.5% over the past month and 16.9% over the past six months to close the last trading session at $8.30, 9.6% above its 100-day moving average of $7.58.
EGIEY’s overall rating of B translates to a Buy in our POWR Ratings system. It also has a B grade for Quality, Momentum, Growth, Stability, and Sentiment.
EGIEY is ranked #6 of 55 stocks in the B-rated Utilities - Foreign category. Click here for all ratings of EGIEY.
Hywin Holdings Ltd. (HYW)
HYW is a China-based company that provides third-party wealth management, insurance brokerage, asset management, and other services.
On April 10, HYW, in partnership with Leonteq Securities AG (Leonteq), a Swiss fintech company with a leading marketplace for structured investment solutions, and Arta TechFin (Arta), a hybrid fintech platform in traditional assets and digital assets, announced the successful launch of a principal-protected note linked to FactSet Hywin Global Health Care Index™ (FHGHC).
FHGHC, inspired by HYW’s healthcare insights and calculated using FactSet’s proprietary datasets, tracks more than 40 stocks selected from 19 stock exchanges across 36 sub-sectors of healthcare. Constituent companies include GSK plc (GSK), BAYER AG (BAYRY), Thermo Fisher Scientific Inc. (TMO), Johnson & Johnson (JNJ), and Pfizer Inc. (PFE).
As a part of the arrangement, Leonteq’s product structuring capabilities and hedging expertise help HYW’s high-net-worth clients in Asia participate in the long-term upside of this Index while safeguarding client wealth in a volatile market context.
In addition, Arta has been engaged as a licensed strategic distribution partner in Hong Kong and in the rest of the Asia Pacific region via its partnership network.
On April 4, HYW announced that it would provide its high-net-worth clients with 360-degree analysis of individual client preferences to offer precisely targeted services by leveraging IBM Cloud Pak for Data and the IBM Garage.
For the first half of the fiscal year ended December 31, 2023, HYW’s Assets under management (AUM) for asset management business increased by 114.3% year-over-year to ¥7.01 billion ($1.02 billion). As a result, its net revenues from the asset management business increased by 79.4% year-over-year to ¥16.2 million ($2.36 million).
Due to an increase in the transaction value of asset-backed products, HYW’s total revenue for the first half of the fiscal year 2023 increased by 17.6% year-over-year to ¥1,04 billion ($150.74 million). During the same period, the company’s income from operations increased by 15.5% year-over-year to ¥102.06 million ($14.85 million), while the profit attributable to shareholders came in at ¥70.58 million ($10.27 million), or ¥2.43 per ADS.
HYW’s trailing-12-month gross profit margin of 98.75% is 61.3% above the industry average of 61.22%. Similarly, its trailing-12-month ROCE, ROTC, and ROTA of 25.49%, 19.96%, and 10.46% compare favorably to its respective industry averages of 11.13%, 5.01%, and 1.15%.
HYW’s revenue and EPS for the fiscal year 2023 are expected to increase 3.3% and 5.9% year-over-year to $291.18 million and $1.25, respectively. Both metrics are expected to increase by 12.2% and 15% year-over-year to $326.73 million and $1.44 per share.
The stock has gained 11.5% over the past month to close the last trading session at $6.20, 2.8% above its 100-day moving average of $6.03.
HYW has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. It also has an A grade for Momentum and a B grade for Quality, Value, Stability, and Sentiment.
Unsurprisingly, HYW tops the list of 54 stocks in the Asset Management industry. Click here for all POWR Ratings of HYW.
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CRH shares were trading at $49.31 per share on Monday morning, up $0.07 (+0.14%). Year-to-date, CRH has gained 26.63%, versus a 8.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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