Inflation dropped for the ninth consecutive month in March, as prices rose 5% year-over-year, its lowest since May 2021. Although annual inflation has fallen considerably from the 40-year highs reached last year, it remains above the Fed’s 2% target. Therefore, further rate hikes to rein in inflation cannot be ruled out.
Amid the rising possibility of a recession, investors can look to buy fundamentally strong stocks NetScout Systems, Inc. (NTCT), Central Puerto S.A. (CEPU), and Vanda Pharmaceuticals Inc. (VNDA), currently trading at discounts to their peers.
Before delving deeper into the fundamentals of these stocks, let’s discuss why the stock market is expected to remain volatile.
Despite the failure of two midsize banks last month, the Federal Reserve went ahead with a quarter-percentage-point interest rate increase, bringing the benchmark federal funds rate to a range between 4.75% and 5%, the highest level since September 2007.
Although annual inflation rose at its slowest pace in nearly two years, core prices which exclude food and energy items, a key indicator of underlying inflation, rose 0.4% in March and by 5.6% year-over-year.
San Francisco Fed President Mary Daly said yesterday, “While the full impact of this policy tightening is still making its way through the system, the strength of the economy and the elevated readings on inflation suggest that there is more work to do.” Earlier this week, Philadelphia Fed President Patrick Harker said that he anticipated that the central bank would need to raise the fed-funds rate above 5% and then sit there for a while.
With inflation still elevated and the tight labor market, the Fed will likely increase the interest rate at its next meeting. Rising interest rates and tighter credit conditions will likely push the economy into a recession later this year.
Let’s discuss why the featured stocks could be optimal buys.
NetScout Systems, Inc. (NTCT)
NTCT provides assurance and cybersecurity solutions. Enterprises, including government agencies and service providers, use the company's service assurance solutions to optimize network performance and identify and resolve issues impacting application and service quality. Its primary products are Service Assurance Solutions for network and application performance, business intelligence analytics, and cybersecurity solutions.
In terms of forward non-GAAP P/E, NTCT’s 14.26x is 29.8% lower than the 20.31x industry average. Its 8.81x forward EV/EBITDA is 34.3% lower than the 13.41x industry average. Likewise, its 9.74x forward EV/EBIT is 42.5% lower than the 16.94x industry average.
NTCT’s total revenue increased 2.8% year-over-year to $269.54 million for the third quarter ended December 31, 2022. Its non-GAAP gross profit rose 5.1% over the prior-year quarter to $217.11 million. The company’s non-GAAP income from operations increased 9.7% year-over-year to $95.60 million.
In addition, its non-GAAP net income increased 9.8% year-over-year to $73.02 million. Also, its non-GAAP EPS came in at $1, representing an increase of 12.4% year-over-year.
Analysts expect NTCT’s EPS and revenue for the quarter ending March 31, 2023, to increase 72.4% and 19.3% year-over-year to $0.50 and $228 million, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 4.7% to close the last trading session at $28.81.
NTCT’s POWR Ratings reflect this positive outlook. NTCT has an overall rating of A, which translates 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 an A grade for Growth and Value and a B for Sentiment and Quality. It is ranked #3 out of 81 stocks in the Technology – Services industry. Click here to see the other ratings of NTCT for Momentum and Stability.
Central Puerto S.A. (CEPU)
Headquartered in Buenos Aires, Argentina, CEPU generates and sells electric power to private and public customers in Argentina. It also produces steam. As of December 31, 2021, the company had an installed capacity of 4,809 MW.
On February 23, 2023, CEPU announced that it had acquired Central Costanera for $48 million. The acquisition will enable CEPU to add an installed capacity of 2,305 MW, taking its total installed capacity beyond 7,100 MW.
In terms of forward non-GAAP P/E, CEPU’s 3.99x is 78.4% lower than the 18.46x industry average. Its 2.90x forward EV/Sales is 27.4% lower than the 4x industry average. Likewise, its 0.56x forward P/B is 69.5% lower than the 1.83x industry average.
For the fiscal year ended December 31, 2022, CEPU’s operating income rose 23.6% year-over-year to ARS61.89 billion ($289.24 million). Its adjusted EBITDA increased 14.6% year-over-year to ARS81.34 billion ($380.14 million).
The company’s net income for the period came in at ARS19.08 billion ($89.1 million), compared to a net loss of ARS1.26 billion ($5.89 million) in the year-ago period. Also, its EPS came in at ARS12.65, compared to a loss per share of ARS0.96 in the prior-year period.
For fiscal 2023, CEPU’s EPS and revenue are expected to increase 367.9% and 21.3% year-over-year to $1.56 and $615.13 million, respectively. Over the past nine months, the stock has gained 97.5% to close the last trading session at $6.22.
CEPU’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Momentum. Within the Utilities – Foreign industry, it is ranked #4 out of 55 stocks. To see the other ratings of CEPU for Growth, Stability, and Sentiment, click here.
Vanda Pharmaceuticals Inc. (VNDA)
VNDA is a global biopharmaceutical company focused on developing and commercializing therapies. Its commercial portfolio comprises two products, HETLIOZ for treating the jet lag disorder, insomnia, and pediatric Non-24 and Fanapt for the treatment of bipolar I disorder and Parkinsons disease psychosis and a long-acting injectable formulation for the treatment of schizophrenia.
On March 27, 2023, A federal court granted judgment in favor of VNDA in its Freedom of Information Act (FOIA) case requesting records created by the FDA during its review of VNDA’s application seeking approval of a new use of its drug, Hetlioz.
VNDA’s President, CEO, and Chairman of the board, Dr. Mihael H. Polymeropoulos, said, “The court’s ruling today constitutes an important step to ensure appropriate transparency at the FDA, which is essential to scientific advancement in the service of public health.”
In terms of forward Price/Sales, VNDA’s 1.55x is 62.8% lower than the 4.18x industry average. Its 19.94x trailing-12-month forward GAAP P/E is 29.6% lower than the 28.34x industry average.
VNDA’s Fanapt net product sales for the fourth quarter ended December 31, 2022, increased 1.8% year-over-year to $24.38 million. Its total operating expenses declined 2.6% over the prior-year quarter to $57.85 million. The company’s net income came in at $6.86 million. Also, its EPS was flat year-over-year to $0.12.
Analysts expect VNDA’s EPS for fiscal 2023 to increase 209.1% year-over-year to $0.34. Over the past month, the stock has gained 9.4% to close the last trading session at $6.78.
VNDA’s POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It is ranked #5 out of 378 stocks in the Biotech industry. It has an A grade for Value and Quality. To see the other ratings of VNDA for Growth, Momentum, Stability, and Sentiment, click here.
What To Do Next?
Get your hands on this special report:
What gives these stocks the right stuff to become big winners, even in this brutal stock market?
First, because they are all low priced companies with the most upside potential in today’s volatile markets.
But even more important, is that they are all top Buy rated stocks according to our coveted POWR Ratings system and they excel in key areas of growth, sentiment and momentum.
Click below now to see these 3 exciting stocks which could double or more in the year ahead.
NTCT shares were trading at $28.87 per share on Thursday morning, up $0.06 (+0.21%). Year-to-date, NTCT has declined -11.20%, versus a 7.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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