While uncertainties are still elevated, involving recession risks and inflation, the economy has tried to remain resilient in recent months. Following recent turmoil from the high-profile bank failures and a slowing economy, the Fed seems close to ending its streak of raising interest rates.
Given this backdrop, investing in shares of fundamentally sound stocks Group 1 Automotive, Inc. (GPI), Golden Agri-Resources Ltd (GARPY), and Friedman Industries, Incorporated (FRD), which are trading at a discount, could be worth your while in May 2023.
The recent weak economic figures raised concerns about the U.S. economy tipping into recession. The latest data from the Commerce Department indicated that Gross Domestic Product (GDP) rose at a 1.1% annual rate in the first quarter, below the 2% estimate.
According to former Treasury Secretary Larry Summers, the U.S. has a 70% chance of tipping into a recession within the next year, as stagflation is brewing in the economy.
Meanwhile, inflation still looms well above the Fed's target at 5%, per the latest Consumer Price Index (CPI) report. Moreover, this environment has caused a shift from growth stocks to value stocks as investors seek shelter in high-quality businesses with strong fundamentals and low share prices.
Additionally, since value stocks tend to be low-volatility investments, they can provide stability for portfolios during market downturns while still offering potential upside when markets rebound.
According to a report by Schroders, the asset management company gave an optimistic outlook on value investing and stated that value equities would outperform the broader market by 11.8% (cumulatively) over the next three years.
With this being said, let’s dive into three fundamentally sound value stocks to watch in the stock market this month.
Group 1 Automotive, Inc. (GPI)
GPI is an automotive retailer that operates through two geographical segments: the United States (U.S.) and the United Kingdom (U.K). Through its omnichannel platform, the company sells new and used cars and light trucks; arranges related vehicle financing; sells service and insurance contracts; provides automotive maintenance and repair services, and sells vehicle parts.
On March 28, GPI announced the expansion of its U.S. operations with the acquisition of Estero Bay Chevrolet in Estero, Florida. The dealership is expected to generate $150 million in annual revenues, which should bode well for the company.
On February 14, backed by its strong cash flow, the company’s board of directors increased its annual dividend rate by 20% year-over-year to $1.80 per share. Consistent with this increase, GPI paid a $0.45 dividend per share to its shareholders on March 15, 2023.
The company’s four-year average dividend yield is 0.90%, and its forward annual dividend of $1.80 translates to an 0.80% yield on prevailing prices. Its dividends have grown at 12.1% and 9.9% CAGRs over the past three and five years, respectively.
In terms of forward non-GAAP P/E, GPI is trading at 5.48x, 60% lower than the industry average of 13.71x. Its forward EV/Sales multiple of 0.38 is 65.2% lower than the industry average of 1.10x. In addition, GPI’s forward Price/Sales ratio of 0.18 is 77.7% lower than the industry average of 0.82.
For the first quarter that ended March 31, 2023, GPI’s total revenues increased 7.4% year-over-year to $4.13 billion, while its gross profit grew marginally from the year-ago value to $727.90 million.
During the same period, its non-GAAP income from operations and net income from continuing operations amounted to $242.10 million and $156.10 million, respectively. Also, its adjusted EPS from continuing operations increased 1.1% year-over-year to $10.93.
Analysts expect GPI’s revenue to increase 2.6% year-over-year to $4.25 billion in the second quarter ending June 2023. Its EPS is expected to be $10.78 in the same period and increase by 11.4% per annum over the next five years. GPI surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.
GPI’s net income and EBITDA grew at 62.4% and 35.4% CAGRs over the past three years. Over the same period, the company’s EPS improved at a CAGR of 73.5%.
Shares of GPI have gained 32.8% over the past six months to close the last trading session at $223.78.
GPI’s promising outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Value. Out of 21 stocks in the Auto Dealers & Rentals industry, it is ranked #3. To see the other ratings of GPI for Growth, Momentum, Stability, Sentiment, and Quality, click here.
Golden Agri-Resources Ltd (GARPY)
Based in Singapore, GARPY is a leading seed-to-shelf agribusiness, producing an extensive portfolio of palm-based products with an efficient end-to-end supply chain, from sustainable sourcing to global delivery. It operates through the Plantations and Palm Oil Mills, and Palm, Laurics, and Others segments.
On February 28, the company proposed a final dividend of 0.991 Singapore cents per share for a total of 1.791 Singapore cents per share for the full year 2022, reflecting a 12% increase from the previous year. The proposed final dividend will be distributed on May 18, 2023, subject to approval from GARPY’s shareholders at the 2023 annual meeting.
GARPY’s four-year average dividend yield is 3.72%, and its forward annual dividend of $1.47 translates to a 7.21% yield on the current price level. Its dividends have grown at 47.4% and 24.7% CAGRs over the past three and five years, respectively.
In terms of forward EV/Sales, GARPY is trading at 0.50x, 71.1% lower than the industry average of 1.73x. Likewise, its forward EV/EBITDA and Price/Sales multiples of 4.33 and 0.24 are 64.3% and 78.7% lower than the industry averages of 12.14x of 1.15x.
GARPY’s revenue increased 12.3% year-over-year to $11.44 billion in the fiscal year that ended on December 31, 2022. Its gross profit grew 28.5% from the year-ago value to $3.03 billion, while its EBITDA improved 50.4% year-over-year to an all-time high of $1.83 billion.
Net profit attributable to owners of the company increased 64.2% from its year-ago value to $782.10 million. In addition, its EPS increased by 64.5% from the previous year to 6.17 cents.
For the fiscal years 2023 and 2024, GARPY’s revenue is expected to amount to $10.52 billion and $10.46 billion, respectively. Over the past three years, its revenue and EBITDA have grown at CAGRs of 21.2% and 63.1%, respectively. Likewise, its EPS grew at a CAGR of 59.4% over the same period.
Over the past three months, the stock has gained 8.4% to close the last trading session at $20.38. Also, it has gained 6.8% year-to-date.
GARPY’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. GARPY also has an A grade for Value and a B for Stability and Quality. Within the Agriculture industry, it is ranked first of 27 stocks.
Click here to see the additional POWR Ratings for GARPY (Growth, Momentum, and Sentiment).
Friedman Industries, Incorporated (FRD)
FRD is a manufacturer and processor of steel products with operating plants in Hickman, Arkansas; Decatur, Alabama; and Lone Star, Texas. The company operates in two segments: coil products and tubular products.
On March 21, the company declared a dividend of $0.02 per share on its common stock, payable to shareholders on May 26, 2023. FRD’s four-year average dividend yield is 1.42%, and its current dividend of $0.08 translates to a 0.73% yield on prevailing prices. Also, its dividend payout has grown at a 9.9% CAGR over the past five years.
In terms of trailing-12-month EV/Sales, FRD is trading at 0.25x, 82.8% lower than the industry average of 1.44x. The stock’s trailing-12-month Price/Sales of 0.16x is 85.8% lower than the 1.10x industry average. Furthermore, the stock’s forward Price/Cash Flow of 1.51x is 82.7% lower than the 8.72x industry average.
FRD’s net sales increased 116.5% year-over-year to $111.86 million for the fiscal third quarter that ended December 31, 2022. Its earnings from operations amounted to $110.43 million versus a loss from operations of $5.59 million in the year-ago period. The company’s net earnings came in at $1.38 million and $0.19 per share compared to a net loss of $2.96 million and $0.45 per share in the prior-year period.
Its revenue has grown at CAGRs of 48.8% and 38.4% over the past three and five years, respectively. Its total assets have grown at a 34.3% CAGR over the past three years.
The stock has gained 18.1% over the past six months and 11.9% year-to-date to close the last trading session at $10.95.
FRD’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. It has an A grade for Value and a B for Growth and Sentiment. Among the 34 stocks in the A-rated Steel industry, it is ranked #13.
In addition to the POWR Ratings I’ve just highlighted, click here to see FRD’s ratings for Momentum, Stability, and Quality.
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GPI shares were trading at $223.15 per share on Wednesday afternoon, down $0.63 (-0.28%). Year-to-date, GPI has gained 23.97%, versus a 7.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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