While the financial sector is limping back to normalcy after the bank failures, the Fed is expected to stay on track to curb inflation through further interest rate hikes this year. Despite the macroeconomic uncertainties, investors could look to buy fundamentally strong stocks Quad/Graphics (QUAD), Startek (SRT), and ARC Document Solutions (ARC), currently trading at under $5. Let’s discuss this in detail...

Despite taking huge strides in bringing inflation down, inflation remains well above the Federal Reserve’s target of 2%. The Fed will likely keep a tightened monetary policy until it achieves its target. The central bank’s resolve will likely keep the economy and the stock market under pressure.

Amid the macroeconomic uncertainties, investors could look to buy fundamentally strong stocks Quad/Graphics, Inc. (QUAD), Startek, Inc. (SRT), and ARC Document Solutions, Inc. (ARC), which are currently trading at a low price.

Despite the bank failures, the Fed raised interest rates by a quarter of a percentage point to between 4.75% and 5%. The closely tracked personal consumption expenditure (PCE), a key indicator of inflation, increased by 0.3%, excluding food and energy, in February, coming slightly lower than expectations.

On the other hand, although the nonfarm payrolls came lower than estimates, it still grew by 236,000 in March, indicating a tight labor market. The unemployment rate came slightly lower than expectations at 3.5%. Despite signs of easing inflation and jobs growth, the Fed looks likely to keep raising interest rates this year.

Moreover, bank failures are expected to bring tighter lending standards, meaning a cutback in bank lending. Many economists believe that the tighter lending standards and a higher federal funds rate could tip the economy into a recession this year.

Despite the tense macro backdrop, I think it could be worth investing in QUAD, SRT, and ARC, which are currently trading under $5.

Quad/Graphics, Inc. (QUAD)

QUAD provides marketing solutions worldwide. The company operates through the United States Print and Related Services and International segments.

On April 4, 2023, QUAD, became the sole printer of the U.S. edition of Reader’s Digest, with the new, multi-million-dollar contract spanning the next three years.

QUAD’s Executive Vice President of Manufacturing, Daren Robarge, stated, “We’re proud to be working with such an esteemed brand. Even as Quad expands into growing areas of the marketing experience, printing continues to be a legacy part of our business. This frictionless transition is indicative of how Quad does business everywhere.”

QUAD’s trailing-12-month EV/Sales of 0.27x is 83.5% lower than the 1.64x industry average. Its trailing-12-month EV/EBITDA of 3.44x is 70.5% lower than the 11.66x industry average. In addition, its trailing-12-month Price/Sales of 0.06x is 95.1% lower than the industry average of 1.26x.

For the fiscal fourth quarter that ended December 31, 2022, QUAD’s net sales increased 3.6% year-over-year to $885.20 million. The company’s adjusted EBITDA increased 31.7% year-over-year to $78.90 million. Its adjusted EPS increased 310% year-over-year to $0.41.

Analysts expect QUAD’s EPS to increase 5% per annum over the next five years. Over the past six months, the stock has gained 67.5% to close the last trading session at $3.97.

QUAD’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #6 out of 40 stocks in the B-rated Outsourcing - Business Services industry. In addition, it has an A grade for Value and a B for Quality. To see the other ratings of QUAD for Growth, Momentum, Stability, and Sentiment, click here.

Startek, Inc. (SRT)

SRT, a business process outsourcing company, provides customer experience, digital transformation, and technology services in various markets. The company primarily offers customer engagement, omnichannel engagement, social media, customer intelligence analytics, work from home, and back-office services.

On April 3, 2023, SRT completed the divestiture of its interest in Contact Center Company to Arabian Internet and Communications Services Company.

SRT’s CEO, Bharat Rao, said, “This transaction significantly improves our balance sheet to the strongest we’ve seen it in five years. Looking forward, we are excited to be able to place an even greater emphasis on investing into our three strategic pillars – sales, digital, and technology – to further expand our best-in-class CX solutions.”

In terms of forward non-GAAP P/E, SRT’s 7.96x is 51.2% lower than the 16.32x industry average. Its forward EV/Sales of 1.03x is 34.8% lower than the 1.58x industry average. Also, the stock’s 0.37x forward Price/Sales is 70.3% lower than the 1.26x industry average.

For the fiscal fourth quarter that ended December 31, 2022, SRT’s net revenue came in at $92.96 million. The company’s gross margin came in at 18.07%, compared to 15.33% in the prior-year period. Its adjusted net income increased 9.8% year-over-year to $14.15 million. Additionally, its adjusted EPS increased 9.4% year-over-year to $0.35.

SRT’s EPS for fiscal 2024 is expected to increase 88.2% year-over-year to $0.32. Its revenue for fiscal 2023 is expected to increase 2.6% year-over-year to $395 million. Over the past nine months, the stock has gained 39.2% to close the last trading session at $3.66.

SRT’s strong fundamentals are reflected in POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

It is ranked #11 in the same industry. It has an A grade for Sentiment and a B for Growth, Value, and Stability. We have also given SRT grades for Momentum and Quality. Get all SRT ratings here.

ARC Document Solutions, Inc. (ARC)

ARC, a digital printing company, provides digital printing and document-related services in the United States. It provides managed print services, and cloud-based document management software, and other digital hosting services.

The company also provides professional services and software services to re-produce and distribute documents of different formats and specialized graphic color printing.

In terms of forward non-GAAP P/E, ARC’s 10.03x is 38.5% lower than the 16.32x industry average. Its forward EV/Sales of 0.64x is 59.5% lower than the 1.58x industry average. Also, the stock’s 4.45x forward EV/EBITDA is 57% lower than the 10.36x industry average.

For the fiscal year ended December 31, 2022, ARC’s net sales increased 5.1% year-over-year to $286.01 million. Its net income attributable to ARC shareholders rose 21.3% over the prior-year period to $11.09 million. The company’s adjusted EBITDA came in at $40.92 million. Also, its adjusted EPS came in at $0.28, representing an increase of 27.3% year-over-year.

Analysts expect ARC’s EPS and revenue for fiscal 2023 to increase 10.7% and 1.3% year-over-year to $0.31 and $289.60 million, respectively. Over the past six months, the stock has gained 26.9% to close the last trading session at $3.11.

ARC’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

It is ranked first out of 40 stocks in the Outsourcing - Business Services industry. In addition, it has an A grade for Value and Quality and a B for Sentiment. To see the other ratings of ARC for Growth, Momentum, and Stability, click here.

Consider This Before Placing Your Next Trade…

We are still in the midst of a bear market.

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QUAD shares were trading at $4.03 per share on Tuesday morning, up $0.06 (+1.51%). Year-to-date, QUAD has declined -1.23%, versus a 7.50% rise in the benchmark S&P 500 index during the same period.

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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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