Economic headwinds, including the Fed’s hawkish tilt and Russia’s invasion of Ukraine, have triggered a bear market. The market’s volatility has driven sharp selloffs in growth stocks. Furthermore, the equity indexes have declined dramatically since the start of the year. The NASDAQ Composite Index has plunged 16.1% year-to-date, while Dow Jones Industrial Average has stumbled 8.7% year-to-date.
However, the current bearish market sentiment provides an opportunity for investors to buy stocks with strong fundamentals at bargain prices. The recent dip in fundamentally sound growth stocks has caused them to become undervalued.
Thus, we think it could be profitable to add quality growth stocks ON Semiconductor Corporation (ON), Westlake Corporation (WLK), Choice Hotels International, Inc. (CHH), and Ralph Lauren Corporation (RL) to one’s portfolio now.
ON Semiconductor Corporation (ON)
ON offers intelligent sensing and power solutions worldwide. The Phoenix, Ariz.-based company operates through three segments: the Power Solutions Group; the Advanced Solutions Group; and the Intelligent Sensing Group. ON provides analog, discrete, module, and integrated semiconductor products, integrated power solutions, and foundry and design services.
Last November, ON teamed up with SensiML Corporation, a developer of AI tools for building IoT endpoints, to deliver industrial edge AI sensing applications. This collaboration might boost innovation and the company’s growth.
In its fiscal 2021 fourth quarter, ended Dec. 31, ON’s revenue increased 27.6% year-over-year to $1.85 billion. Its gross profit increased 67.2% year-over-year to $832.20 million. The company’s operating income rose 185.9% from the prior-year period to $480.30 million. Its net income increased 374.8% from the year-ago value to $426.40 million. And net income per share of common stock attributable to ON grew 357.1% from its year-ago value to $0.96.
The company’s financials have grown substantially over the past three years. ON’s revenue and net income have risen at CAGRs of 4.7% and 17.2%, respectively, over the past three years. Its EPS has grown at a 16.4% CAGR, while its levered free cash flow has improved at a 14.7% CAGR over the past three years.
The $1.90 billion consensus revenue estimate for its fiscal year 2022 first-quarter, ending March 31, 2022, represents 28.4% year-over-year growth. The $1.04 consensus EPS estimate for the current quarter indicates 197.5% year-over-year growth. Also, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of all the trailing four quarters.
Over the past year, the stock has gained 48.5% in price to close yesterday’s trading session at $57.63.
ON’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ON has an A grade for Growth and B for Value. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #36 of 97 stocks.
To see additional POWR Ratings (Momentum, Stability, Quality, and Sentiment) for ON, click here.
Click here to checkout our Semiconductor Industry Report for 2022
Westlake Corporation (WLK)
WLK manufactures, markets, and supplies petrochemicals, polymers, and building products worldwide. The Houston, Tex.-based company operates through two segments: Performance and Essential Materials; and Housing and Infrastructure Products. It offers its products to a range of customers, including chemical processors, plastic fabricators, construction contractors, and supply warehouses.
On Feb.1, 2022, WLK completed the acquisition of Hexion Inc.’s global epoxy business, a leading global supplier of coatings and composites. The acquisition is expected to expand the company’s integration business by expanding its chemical materials portfolio.
WLK’s net sales increased 78.5% year-over-year to $3.51 billion in its fiscal year 2021 fourth quarter, ended Dec. 31, 2021. WLK’s income from operations grew 390.4% year-over-year to $873 million. And its EBITDA rose 193% year-over-year to $1.13 billion. Its net income attributable to WLK improved 469.9% year-over-year to $644 million, and the company’s earnings per common share increased 472.4% from its year-ago value to $4.98.
The company has an impressive growth history as well; its revenue and net income have improved at CAGRs of 10.9% and 26.5%, respectively, over the past three years. And its levered free cash flow has increased at a 35.5% CAGR over the past three years.
Analysts expect WLK’s revenue for the fiscal year 2022 first quarter, ending March 31, 2022, to be $3.37 billion, representing a 43% rise year-over-year. The Street expects the company’s EPS for the current quarter to come in at $4.59, representing a 145.7% increase year-over-year. WLK has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of all the trailing four quarters.
Shares of WLK have improved 21.1% in price year-to-date and 23.6% over the past year. WLK closed yesterday’s trading session at $117.58.
WLK’s POWR Ratings reflect this strong outlook. It is no surprise that WLK has an overall rating of A, which equates to Strong Buy in our POWR Ratings system.
It has a grade of B for Growth, Value, and Sentiment. It is ranked #13 of 89 stocks in the A-rated Chemicals industry.
Click here to see WLK ratings for Momentum, Stability, and Quality.
Choice Hotels International, Inc. (CHH)
CHH operates as a hotel franchisor worldwide. The Rockville, Md., company operates in two segments: Hotel Franchising and Corporate; and Other. CHH franchises lodging properties under the brand names of Comfort Inn, Comfort Suites, Quality, Clarion, Econo Lodge, Rodeway Inn, Cambria Hotels, and Ascend Hotel Collection. It operates more than 7,030 hotels.
In January, CHH added new hotels from Florida to California. These additions might accelerate the company’s expansion across the country and boost its business growth and revenue streams.
In its fiscal year 2021 fourth quarter, ended Dec. 31, CHH’s total revenues increased 47.2% year-over-year to $284.64 million. CHH’s operating income grew 555.4% year-over-year to $106.81 million. The company’s adjusted EBITDA rose 14% from the prior-year period to $95.50 million. And CHH’s net income increased 714.8% from the year-ago value to $64.08 million, while its earnings per share grew 714.3% from its year-ago value to $1.14.
CHH’s EBITDA and net income have risen at CAGRs of 10.5% and 10.1%, respectively, over the past three years. Its EPS has grown at a 10.7% CAGR, while levered free cash flow has improved at a 22.3% CAGR over the past three years.
The $250.26 million consensus revenue estimate for its fiscal first quarter, ending March 31, 2022, represents 36.8% year-over-year growth. The $0.91 consensus EPS estimate for the current quarter indicates a 59.1% year-over-year growth from the prior-year period. Also, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has improved 26.2% in price over the past year. CHH closed yesterday’s trading session at $135.22.
CHH has an overall rating of B, which translates to Buy in our POWR Ratings system. It has a grade of A for Quality and a B for Growth. It is ranked #5 of 22 stocks in the Travel-Hotels/Resorts industry.
Click here to see CHH’s additional POWR Ratings for Momentum, Value, Sentiment, and Stability.
Ralph Lauren Corporation (RL)
New York City’s RL designs and distributes lifestyle products in North America, Europe, Asia, and internationally. The company offers apparel, accessories, home products, and fragrances. RL operates 548 retail stores, 650 concession-based shop-within-shops, 139 Ralph Lauren stores, and 143 Club Monaco stores through licensing partners.
In January, RL introduced Intelligent Insulation, an apparel and textile innovation developed for team USA’s opening parade uniform for the Winter Games. This is expected to boost RL’s profitability.
RL’s net revenues increased 26.7% year-over-year to $1.82 billion in its fiscal 2022 third quarter, ended Dec. 25, 2021. RL’s gross profit grew 28.8% year-over-year to $1.20 billion. Its income before income taxes rose 70.9% year-over-year to $277.20 million, and its net income improved 81.7% year-over-year to $217.70 million. The company’s net income per common share increased 82% from the year-ago value to $2.93.
RL’s financials have grown substantially over the past three years. Its net income has risen at a 4.4% CAGR over the past three years. And its EPS has grown at a 7.9% CAGR, while levered free cash flow has increased at a 32.3% CAGR over the past three years.
Analysts expect RL’s revenue for its fiscal fourth-quarter, ending March 31, 2022, to come in at $1.46 billion, representing a 13.4% rise year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock declined 10.4% in price over the past year to close yesterday’s trading session at $109.12.
RL’s strong fundamentals are reflected in its POWR Ratings. RL has an overall B rating, which translates to Buy in our POWR Rating system.
RL has an A grade for Quality and a B for Growth and Value. Within the A-rated Fashion & Luxury industry, it is ranked #15 of 66 stocks.
To see additional POWR Ratings (Stability, Momentum, and Sentiment) for RL, click here.
What To Do Next?
If you would like to see more top growth stocks, then you should check out our free special report:
What makes them "MUST OWN"?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +48.22% a year.
Click below now to see these top performing stocks with exciting growth prospects:
ON shares were trading at $57.38 per share on Friday afternoon, down $0.25 (-0.43%). Year-to-date, ON has declined -15.52%, versus a -10.63% 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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