3 Stocks That Could Bounce Back in the Fourth Quarter

The three major stock market indexes witnessed a broad rally during Tuesday’s regular session. Investor optimism surrounding the better-than-expected manufacturing reading and strong business sentiment as COVID-19 cases continue to decline might have triggered the rebound after a downtrend in September. Although the market could continue to be volatile in October amid worries surrounding the Fed’s potential tapering of its bond-buying program in the near term, analysts expect the concluding quarter of the year to be favorable for stocks.

 CFRA chief investment strategist Sam Stovall believes that while October had previously witnessed higher volatility as compared to the averages of the other 11 months, this year, the fourth quarter is likely to record a “higher-than-average return.” Moreover, the upcoming earnings season could be a positive catalyst for the stock market, with expected earnings growth and surprises boosting investor sentiment.

Amid this environment, fundamentally strong stocks Smith & Nephew plc (SNN), DaVita Inc. (DVA), and Orthofix Medical Inc. (OFIX), which have dipped over the past month, are well-positioned to regain their momentum soon. So, these stocks could be solid bets now.

Smith & Nephew plc (SNN)

Headquartered in Watford, United Kingdom, SNN is a medical technology company that develops, manufactures, markets, and sells medical devices and services. The company’s global franchise areas include Orthopaedics, Sports Medicine & ENT, and Advanced Wound Management. It also operates Arthroscopic Enabling Technologies (AET), Trauma & Extremities, and other surgical businesses.

Last month, SNN launched two significant new technologies to its total knee arthroplasty (TKA) portfolio – the JOURNEY II Medial Dished (MD) for TKA and SYNC Performance Instruments. These new additions will allow orthopedics to achieve the desired knee kinematics in cruciate sacrificing and cruciate-retaining total knee replacement procedures.

SNN’s revenue increased 27.7% year-over-year to $2.6 billion in the second quarter ended July 3, 2021. The company’s gross profit grew 31.6% from the year-ago value to $1.84 billion. Its trading profit rose 166.9% from the prior year's quarter to $459 million. Also, the company’s operating profit came in at $239 million, compared to an operating loss of $5 million in the second quarter of 2020.

Analysts expect SNN’s EPS to increase at the rate of 4.6% per annum over the next five years. The company’s consensus revenue of $5.37 billion for the fiscal period ending December 2021 represents an increase of 17.7% year-over-year. But the stock has lost 10.4% over the past month.

SNN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.

Also, the stock has a B grade for Value, Quality, and Growth. We’ve also graded SNN for Stability, Sentiment, and Momentum. Click here to access all of SNN’s ratings.

SNN is ranked #11 of 176 stocks in the Medical – Devices & Equipment industry.

DaVita Inc. (DVA)

Incorporated in 1994, DVA is a kidney dialysis service provider that operates through U.S. dialysis and related lab services; and Other-Ancillary services and strategic initiatives. The company’s additional businesses include DaVita Integrated Kidney Care, DaVita Venture Group, DaVita Clinical Research, and DaVita Physician Solutions.

Last month, DVA appointed Dr. Gregory Moore as the new independent director. Dr. Moore, with his experience, should help the company to accelerate digital transformation in kidney care. Also, he will develop new solutions that should help the company build a caring environment for the patients in the future.

During the second quarter ended June 30, 2021, DVA’s total revenues increased 1.3% year-over-year to $2.92 billion. The company’s net income grew 37.7% from the year-ago value to $351.03 million. Its EPS rose 63% from the prior-year quarter to $2.64. Also, the company’s cash and cash equivalents grew 221.2% from $324.96 million as of December 31, 2020, to $1.04 billion as of June 30, 2021.

DVA’s revenue is expected to increase 3.4% year-over-year to $12.01 billion in fiscal 2022. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. Its EPS is expected to increase 26.7% in the current year. While the stock has lost 13% over the past month, it has gained 32.7% over the past year.

DVA’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has a B grade for Growth, Value, and Quality.

In addition to the POWR Rating grades I’ve just highlighted, one can see DVA’s ratings for Stability, Momentum, and Sentiment here. The stock is ranked #1 of 84 stocks in the Medical – Services industry.

Orthofix Medical Inc. (OFIX)

OFIX is a global medical device company that focuses on spine and orthopedics solutions. It has two strategic business units: Orthofix Spine and Orthofix Orthopedics. The company operates in four segments: BioStim; Biologics; Extremity Fixation; and Spine Fixation. Its segments offer Spinal-Stim, Trinity Evolution, VersaShield, Eight-Plate Guided Growth System, and Contours VPS Volar Plating System III.

Last month, OFIX announced that more than 60,000 M6-C artificial cervical discs had been implanted worldwide. This generation disc comprises an artificial visco-elastic nucleus and fiber annulus, and various unique features. The M6-C disc has established an industry-leading position and should allow the company to stand out in the market.

OFIX’s net sales increased 66% year-over-year to $121.39 million. The company’s gross profit grew 88% from the year-ago value to $93.96 million. Its operating income came in at $4.27 million for the quarter, compared to an operating loss of $21 million in the prior-year quarter. In addition, the company’s net income amounted to $2.42 million, compared to a net loss of $18.42 million in the second quarter of 2020.

For the fiscal year 2021, analysts expect OFIX’s revenue to be $467.93 million, representing a 15.1% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. In addition, its EPS is expected to increase by 184.6% in the current year. OFIX’s stock price has surged 15.4% over the past year. But it has declined 12.4% over the past month.

It’s no surprise that OFIX has an overall A rating, which equates to a Strong Buy in our POWR Rating system. Also, the stock has an A grade for Value, and a B for Quality.

Click here to see the additional POWR Ratings for OFIX (Momentum, Sentiment, Stability, and Growth). OFIX is ranked #12 in the Medical – Devices & Equipment industry.

SNN shares were unchanged in after-hours trading Wednesday. Year-to-date, SNN has declined -17.49%, versus a 17.46% rise in the benchmark S&P 500 index during the same period.

Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.

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