Inflation is still rampant, with the Consumer Price Index (CPI) soaring 9.1% year-over-year in June, surpassing the 8.8% Dow Jones estimate. In response, Federal Reserve officials have signaled to increase interest rates by 75 basis points later this month to bring prices down.
Overall, the monetary policy tightening aggravates the recession fears and will likely keep the stock market under immense pressure. However, this year's widespread sell-off has created solid opportunities for long-term investors to scoop up quality stocks, which are currently trading at attractive valuations.
According to Cliff Asness, managing and founding principal at AQR Capital Management, and Rob Arnott, founder, and chairman of Research Affiliates, value stocks are still unusually cheap compared to growth stocks and finally have room to run after years of lagging.
Investors’ interest in value stocks is evident from the iShares Edge MSCI USA Value Factor ETF’s (VLUE) 4.1% gains over the past month.
Thus, we think fundamentally sound stocks Telefonaktiebolaget LM Ericsson (publ) (ERIC), Pitney Bowes Inc. (PBI), and Telefónica, S.A. (TEF), which are trading at significant discounts to their peers, could be ideal additions to your portfolio now. These stocks are rated Buy in our proprietary POWR Ratings system and have an A or B grade for Value.
Telefonaktiebolaget LM Ericsson (publ) (ERIC)
ERIC provides communication infrastructure, services, and software solutions to the telecom and other sectors in North America, Europe, the Middle East, Oceania, India, North Asia, and internationally. It is headquartered in Stockholm, Sweden. The company operates through four segments: Networks; Digital Services; Managed Services; and Emerging Business and Other.
On July 15, ERIC received clearance from the Committee on Foreign Investments in the United States (CFIUS) to complete its acquisition of Vonage Holdings Corp. (VG), a global provider of cloud-based communications. It represents the final requisite approval to complete the transaction. The acquisition is expected to expand the company’s presence in the wireless enterprise and broaden its global offerings.
On May 17, ERIC and Intel Corp. (INTC) launched a tech hub in California, USA. “Cloud RAN technologies and virtualization have enormous potential to impact future networks. Through the Tech Hub, we will accelerate Cloud RAN technology in areas like energy efficiency and performance while reducing time to market,” said Per Narvinger, Head of Product Area Networks, Ericsson.
In the fiscal 2022 second quarter ended June 30, 2022, ERIC's net sales increased 13.8% year-over-year to SEK 62.50 billion ($6.10 billion). The company's EBIT grew 25.9% year-over-year to SEK 7.30 billion ($713.01 million).
The company’s net income came in at SEK 4.70 billion ($459.06 million), up 20.5% year-over-year. In addition, its earnings per share rose 22.7% year-over-year to SEK 1.35.
In terms of forward Non-GAAP P/E, it is currently trading at 11.13x, 36.1% lower than the industry average of 17.43x. Its forward EV/Sales multiple of 0.72 is 73.8% lower than the industry average of 2.76x. Also, its forward Price/ Cash Flow ratio of 9.98 compares with the industry average of 16.67x.
The consensus EPS estimate of $0.13 for the fiscal 2023 first quarter (ending March 2023) represents 31.5% year-over-year growth from the same period in 2021. The company has an impressive revenue surprise history as it has topped the revenue consensus estimates in three of the trailing four quarters.
The stock has gained 6.3% over the past five days to close the last trading session at $7.31.
ERIC's POWR Ratings reflect this promising outlook. The stock has an overall grade of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
It has a grade of A for Value and a B for Quality. It is ranked #7 of 53 stocks in the Technology - Communication/Networking industry. Click here to see ERIC’s POWR Ratings for Momentum, Sentiment, Growth, and Stability.
Pitney Bowes Inc. (PBI)
PBI is a shipping and mailing company that provides technology, logistics, and financial services to small and medium-sized businesses, retailers, large enterprises, and government clients in the United States and internationally. The company operates through Global Ecommerce, Presort Services, and SendTech Solutions.
In April, PBI introduced a portfolio of e-commerce logistics service platforms to support the varied needs of direct-to-consumer brands, retailers, marketplaces, and third-party logistics operators. The portfolio consists of Designed Delivery, Designed Returns, Designed Cross-Border, and Designed Fulfillment and is purpose-built for B2C e-commerce.
The new portfolio might accelerate the company’s business growth and profitability.
PBI's revenue increased 1.3% year-over-year to $926.94 million in the fiscal 2022 first quarter ended March 31, 2022. Its adjusted EBIT rose 6% from the year-ago value to $52.68 million.
Its adjusted EBITDA amounted to $94.68 million, up 6.1% year-over-year. In addition, the company’s adjusted earnings per share grew 14.3% from the prior-year period to $0.08.
In terms of forward Non-GAAP P/E, PBI is currently trading at 13.59x, 11.5% lower than the industry average of 15.36x. Likewise, its forward EV/Sales multiple of 0.68 is 57.5% lower than the industry average of 1.59x. In addition, its forward Price/Sales ratio of 0.19 compares with the industry average of 1.24x.
Analysts expect PBI’s revenue for the fiscal 2022 third quarter (ending September 2022) to come in at $925.27 million, representing a 5.7% rise year-over-year. Also, Street expects the company's EPS for the ongoing quarter to come in at $0.09, representing a growth of 12.5% year-over-year.
It’s no surprise that the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
PBI’s shares have gained 8.3% over the past month to close the last trading session at $4.04.
PBI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, equating to Buy in our proprietary rating system.
PBI has a grade of B for Value and Quality. Within the Technology - Hardware industry, it is ranked #11 of 45 stocks. Click here to see PBI's additional POWR Ratings (Stability, Growth, Sentiment, and Momentum).
Telefónica, S.A. (TEF)
Headquartered in Madrid, Spain, TEF provides telecommunications services in Europe and Latin America. The company offers a wide range of telecommunication services, including PSTN lines, public telephone services, ISDN accesses, domestic and international long-distance and fixed-to-mobile communication services, supplementary value-added services, and telephony information services.
TEF's operating income before D&A increased 62.9% year-over-year to €21.98 billion ($22.45 billion) in the fiscal fourth quarter ended December 31, 2021. Its operating income improved 228.2% year-over-year to €13.59 billion ($13.88 billion). The company’s profit before taxes rose 368.3% from the year-ago value to €12.10 billion ($12.36 billion).
Furthermore, TEF’s profit for the period attributable to equity holders of the parent came in at €8.14 billion ($8.31 billion), up 414.4% year-over-year. Its earnings per share attributable to equity holders of the parent rose 500% year-over-year to €1.38.
In terms of forward P/E, TEF is currently trading at 11.38x, 38.3% lower than the industry average of 18.45x. Its forward EV/EBITDA multiple of 6.08 is 28.1% lower than the industry average of 8.46x.
The $39.62 consensus revenue estimate for the fiscal year 2023 (ending December 2023) represents a 1.2% improvement from the prior year. Also, the company has surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 7.9% year-to-date and 8.6% over the past year to close the last trading session at $4.66.
TEF's POWR Ratings reflect a promising outlook. The stock has an overall grade of B, translating to Buy in our proprietary rating system.
TEF has a grade of B for Value, Sentiment, and Stability. Among the 46 stocks in the A-rated Telecom - Foreign industry, it is ranked #23. Click here to access the additional POWR Ratings for Momentum, Growth, and Quality for TEF.
ERIC shares were trading at $7.39 per share on Thursday afternoon, up $0.08 (+1.09%). Year-to-date, ERIC has declined -31.36%, versus a -16.06% 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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