Growing inflationary pressures, consecutive interest rate hikes, and the prospect of an economic slowdown have kept the stock market under immense pressure. However, investors lauded the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), which revealed that vacancies fell 1.1 million to 10.1 million on the last working day of August.
Furthermore, according to ADP’s private employment report, the U.S. economy added 208,000 jobs in September, which was more than projected, continuing a trend of positive surprises in labor market data.
Also, investors eyeing the Labor Department’s September jobs report, which is scheduled on Friday, will be the most key report for the market. Economists expect September nonfarm payrolls to have risen by 260,000.
Given this backdrop, we think investors could consider buying fundamentally-sound bargain stocks APA Corporation (APA), Crane Holdings Co. (CR), and Hillenbrand Inc. (HI) with solid growth attributes.
APA Corporation (APA)
APA, through its subsidiaries, explores for, develops, and produces oil and gas resources in the United States, Egypt, and the United Kingdom, as well as offshore Suriname exploration. The company also owns and operates collection, processing, and transmission assets in West Texas and four Permian-to-Gulf Coast pipelines.
Last month, APA announced the hiring of GHD, a privately held global professional services firm specializing in implementing and verifying sustainability projects. This engagement reinforces APA’s commitment to environmental protection, which includes an all-employee compensation-linked target established earlier this year to reduce at least 1 million tons of CO2e by the end of 2024.
In terms of its forward non-GAAP P/E, APA is trading at 4.50x, 40.8% lower than the industry average of 7.61x. Its forward Price/Cash Flow multiple of 2.85x is 31.6% lower than the industry average of 4.17x.
During the second quarter ended June 30, 2022, APA’s total revenue increased 73.5% year-over-year to $3.05 billion. The company’s net income grew 193% from the year-ago value to $926 million, while its EPS grew 230.5% from the prior-year quarter to $2.71. In addition, its net cash provided from operating activities surged 58.4% year-over-year to $1.54 billion.
Street expects APA’s revenues and EPS to rise 29% and 133.1% year-over-year to $10.22 billion and $9.09, respectively, in fiscal 2022. In addition, APA’s EPS is expected to rise at a 34.7% CAGR over the next five years.
The stock has gained 82.5% over the past year and 50.7% year-to-date.
APA’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
APA is also rated an A grade for Quality and Momentum and a B for Value. Within the B-rated Energy – Oil & Gas industry, it is ranked #10 of 94 stocks.
To see additional POWR Ratings for Stability, Sentiment, and Growth for APA, Click here.
Crane Holdings Co. (CR)
CR and its subsidiaries manufacture and distribute engineered industrial products across the Americas, Europe, the Middle East, Asia, and Australia. Aerospace and Electronics; Process Flow Technologies; Payment & Merchandising Technologies; and Engineered Materials are the company’s four operational segments.
In terms of its forward non-GAAP P/E, CR is trading at 12.33x, 20.3% lower than the industry average of 15.46x. Its forward EV/EBIT multiple of 9.81x is 30.4% lower than the industry average of 14.09x.
For the second quarter ended June 30, 2022, CR’s total net sales increased 1% from the year-ago value to $864.3 million. The company’s operating income came in at $124.4 million. Its net income surged 102.8% from the year-ago value to $280.5 million, while its EPS grew 111.6% from the prior-year quarter to $4.93.
CR’s EPS is expected to increase 18.3% year-over-year to $7.75 in the current year. The consensus revenue estimate of $3.39 billion in fiscal 2022 represents a 6.7% increase from the same period last year. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.
The stock has gained 7.1% over the past three months and 1.9% over the past month.
It is no surprise that CR has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The stock also has an A grade for Quality and a B for Value and Sentiment. In the B-rated Industrial – Machinery industry, it is ranked #1 of 80 stocks.
Beyond the POWR Ratings grades I have just highlighted, you can view the CR ratings for Growth, Momentum, and Stability.
Hillenbrand Inc. (HI)
HI operates as a diversified industrial company in the United States and internationally. It operates through three segments: Advanced Process Solutions; Molding Technology Solutions; and Batesville.
In August, HI completed the acquisition of Herbold Meckesheim GmbH (Herbold) for €79 million. With this acquisition, HI should be able to solidify its position as the industry leader and broaden its offers throughout the recycling value chain by utilizing Herbold’s key technologies.
In terms of its forward EV/Sales, HI is trading at 1.31x, 16.9% lower than the industry average of 1.58x. Its forward EV/EBIT multiple of 8.99x is 36.2% lower than the industry average of 14.09x.
During the third quarter ended June 30, 2022, HI’s revenue increased 4% year-over-year to $721 million. Its gross profit increased 2.4% year-over-year to $231.3 million. The company’s adjusted net income surged 2.8% from the prior-year quarter to $66.4 million, while its adjusted EPS grew 8.2% year-over-year to $0.92.
Analysts expect HI’s EPS and revenue to grow 8.2% and 4% year-over-year to $4.21 and $3.04 billion, respectively, in the fiscal year 2023. In addition, its EPS is expected to grow 12% per annum over the next five years.
HI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. HI also has a B grade for Growth, Sentiment, and Value. The stock is ranked #2 of the 36 stocks in the A-rated Industrial - Manufacturing industry.
In addition to the POWR Ratings grades I have just highlighted, you can see the HI ratings for Momentum, Stability, and Quality.
APA shares were trading at $41.69 per share on Thursday afternoon, up $1.17 (+2.89%). Year-to-date, APA has gained 56.64%, versus a -20.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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