As recent economic data beat expectations and inflation is well above the Fed’s 2% target, the central bank will likely increase interest rates again at its next meeting rather than leaving them unchanged as previously anticipated. Continued rate hikes and other macroeconomic headwinds are expected to keep the stock market volatile in the near term.
Therefore, it could be wise to invest in stable stocks Hitachi, Ltd. (HTHIY), Honda Motor Co., Ltd. (HMC), HOYA Corporation (HOCPY), which could help navigate the prevailing volatile macro environment.
Inflation remained persistently high in April, potentially increasing the chances for further interest rate hikes by the Federal Reserve. The core personal consumption expenditures (PCE) price index, a gauge closely monitored by the Fed, grew 0.4% last month, higher than the 0.3% Dow Jones estimate. On an annual basis, the core PCE price index rose 4.7% after increasing 4.6% in March.
Despite the elevated inflation rate, consumer spending held up well, supported by solid job gains and pay increases. Consumer spending climbed 0.8% last month after a 0.1% rise in March, surpassing economists’ forecast of 0.4%. Moreover, employers added 253,000 jobs in April, above Wall Street estimates for a 180,000 gain. The unemployment rate ticked lower to 3.4%, a historically low level.
Wages also accelerated in April, with average hourly earnings rising 0.5% for the month and 4.4% year-over-year, above the estimates of 0.3% and 4.2%, respectively. The stronger-than-expected jobs data and a surge in wage growth point to the persistent labor market.
According to the International Monetary Fund (IMF), the U.S. economy has proven resilient despite tight monetary and fiscal policy; however, this indicates that inflation has been more persistent than expected. As a result, interest rates “will need to be somewhat higher for longer” to successfully bring inflation down to the Fed’s long-term target of 2%.
The IMF forecasts the federal funds rate peaking this year at 5.4%, above the nominal 5.25% Fed rate and easing to 4.9% in 2024.
Furthermore, markets are pricing a nearly 65% chance of the Fed raising its benchmark policy rate by another 25 basis points at its June meeting, according to the CME FedWatch Tool.
Against the backdrop, it could be wise to invest in quality stocks, HTHIY, HMC, and HOCPY, which are relatively stable and ensure solid returns.
Let’s take a closer look at the fundamentals of the featured stocks:
Hitachi, Ltd. (HTHIY)
Headquartered in Tokyo, Japan, HTHIY offers information technology, mobility, industry, and smart life solutions. The company provides information and telecom services, including the Internet of Things (IoT), servers, software, ATMs, and scanners for communication, finance, manufacturing, and energy industries. Also, it operates nuclear power plants and power generation systems.
Yesterday, Hitachi Vantara, HTHIY’s subsidiary, introduced Hitachi Data Reliability Engineering (DRE), a suite of consulting services helping organizations improve the quality of business-critical data. Amid a surge of data from connected devices and applications, enterprises are challenged with increasingly complex data environments. The latest offering would bode well for the company.
On the same day, Hitachi Energy signed agreements with ENOWA and Saudi Electricity Company (SEC) to design and develop the first phase of the visionary NEOM region transmission system. The contracts include the supply of three high-voltage direct current (HVDC) transmission systems to end customer ENOWA. The three HVDC links will have a total power capacity of up to 9 gigawatts.
This agreement is expected to boost the company’s profitability and growth.
HTHIY’s revenues increased 6% year-over-year to ¥10.88 trillion ($77.69 billion) for the year that ended March 31, 2023. The company’s adjusted operating income grew 1.3% from the previous year to ¥748.10 billion ($5.34 billion). Its adjusted EBITA came in at ¥884.60 billion ($6.32 billion), up 3.4% year-over-year. Also, the company’s net income increased 4.9% year-over-year to ¥703.80 billion ($5.03 billion).
In addition, earnings per share attributable to HTHIY stockholders came in at ¥683.89, a 13.4% increase from the prior year.
The consensus revenue estimate of $64.30 billion for the fiscal year (ending March 2024) reflects a 427.8% year-over-year improvement. Also, analysts expect HTHIY’s revenue and EPS for the fiscal year 2025 to grow 2.3% and 2.3% year-over-year to $65.78 billion and $8.24, respectively.
Over the past six months, the stock has gained 8% and 11.7% over the past year to close the last trading session at $115.70. Its 24-month beta is 0.75.
HTHIY’s strong fundamentals are reflected in its POWR Ratings. The stock 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.
HTHIY has an A grade for Value and a B for Stability, Momentum, and Quality. Within the B-rated Industrial - Equipment industry, it is ranked #6 of 91 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see HTHIY’s ratings for Sentiment and Growth here.
Honda Motor Co., Ltd. (HMC)
HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other spare parts in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses. It is headquartered in Tokyo, Japan.
On February 28, HMC and LG Energy Solution held the official ground-breaking ceremony for a new joint venture (JV) EV battery plant in Fayette, Ohio. In January, both companies entered into a JV agreement to produce lithium-ion batteries for EVs. The facility aims to have an annual production capacity of about 40GWh.
Batteries generated by the new JV would be supplied exclusively to HMC plants in North America to power battery EVs. This strategic alliance is expected to boost HMC’s revenue streams in the upcoming years.
For the fiscal year that ended March 31, 2023, HMC’s sales revenue grew 16.2% year-over-year to ¥16.91 trillion ($120.75 billion). The increase is primarily due to growth in the Motorcycle business and positive foreign currency translation effects. As of March 31, 2023, the company’s cash and cash equivalents stood at ¥3.80 trillion ($27.14 billion), compared to ¥3.93 trillion ($28.06 billion) as of March 31, 2022.
Furthermore, HMC’s total assets on March 31, 2023, increased by ¥696.90 billion ($4.98 billion) to ¥24.67 trillion ($176.17 billion) from March 31, 2022. Also, the company’s liabilities decreased by ¥76.60 billion ($547 million) to ¥13.12 trillion ($93.69 billion) from March 31, 2022.
Street expects HMC’s revenue to grow 396.9% year-over-year to $134.43 billion for the fiscal year ending March 2024. The company’s EPS for the current year is expected to increase 18.4% year-over-year to $3.75. Shares of HMC have gained 8.7% over the past month and 17.8% over the past six months to close the last trading session at $28.87. The stock has a 24-month beta of 0.51.
HMC’s POWR Ratings reflect a promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
HMC has an A grade for Value and a B for Stability and Quality. The stock is ranked #2 within the 58-stock Auto & Vehicle Manufacturers industry.
Click here to access the additional POWR Ratings for HMC (Growth, Sentiment, and Momentum).
HOYA Corporation (HOCPY)
HOCPY is a med-tech company that provides high-tech and medical products globally. The company operates through three segments: Life Care; Information Technology; and Other. It is headquartered in Tokyo, Japan.
On January 16, HOCPY’s division, PENTAX Medical, obtained CE marks for two of its latest innovations: PENTAX Medical INSPIRA™, the new premium video processor (EPK-i8020c) and the i20c video endoscope series.
Rainer Burkard, Global President at PENTAX Medical, said, “PENTAX Medical INSPIRATM video processor not only upgrades legacy instruments’ imaging capabilities, in combination with our new i20c endoscope generation, it is a milestone for endoscopy. In line with our commitment to continually innovate products, this cutting-edge solution provides a future-proof platform and we are proud of the ground-breaking image quality it brings.”
HOCPY’s revenue increased 9.5% year-over-year to ¥185.77 billion ($1.33 billion) in the fourth quarter that ended March 31, 2023. Its profit before taxes rose marginally year-over-year to ¥54 billion ($385.61 million). In addition, profit attributable to owners of the company was ¥42.55 billion ($303.85 million), up 7.9% year-over-year, while its EPS grew 11.5% from the year-ago value to ¥119.60.
Analysts expect revenue and EPS for the fiscal year (ending March 2024) to increase by 1.6% and 11.7% year-over-year to $5.44 billion and $3.87, respectively. Also, the company surpassed its consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Additionally, the consensus revenue and EPS estimates of $5.79 billion and $4.92 for the fiscal year 2025 indicate an improvement of 6.5% and 27.1% year-over-year, respectively.
HOCPY has gained 16.6% over the past month and 19.4% over the past six months to close the last trading session at $123.69. It has a 0.97 24-month beta.
HOCPY’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
HOCPY has an A grade for Quality and a B for Stability. It is ranked #47 out of 140 stocks in the Medical - Devices & Equipment industry.
To access additional ratings for HOCPY’s Growth, Value, Sentiment, and Momentum, click here.
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REVISED: 2023 Stock Market Outlook >
HTHIY shares were unchanged in premarket trading Wednesday. Year-to-date, HTHIY has gained 14.48%, versus a 10.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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