Because stock markets continue to rally in the absence of major indicators of an economic recovery, many analysts expect another market correction in the near term. According to an E-Trade Financial survey, a majority of investors with $1 million or more in a brokerage account believe the stock market is in a bubble or close to being in one.
And because it is difficult to say with certainty if the market is in a bubble, a prudent move would be to tune-up one’s portfolio now with a greater focus on undervalued sectors. In fact, some investors have already started rotating away from expensive growth stocks to quality bargains that might witness good upside with an economic recovery. This is activity is evidenced by iShares Russell 1000 Value ETF’s (IWD) 15.2% gains over the past three months versus iShares Russell 1000 Growth ETF’s (IWF) 9.8% returns.
Hence, we think companies like Cigna Corporation (CI), Honda Motor Company, Ltd. (HMC) and POSCO (PKX), which are currently trading at discounts to their peers, could deliver solid returns based on their impressive revenue and earnings growth.
Cigna Corporation (CI)
CI is a global health service company that delivers choice, predictability, affordability and access to quality care through integrated capabilities and connected, personalized solutions. The company provides insurance and related products and services in more than 30 countries. It operates primarily through Health Services, Integrated Medical, International Markets, Group Disability and Other segments.
CI’s trailing-12-month P/E of 8.71x is 77.3% lower than the industry average of 38.34x. In terms of forward price/sales, the stock is currently trading at 0.44x, 95.4% lower than the industry average of 9.51x.
On January 6, CI added Iora Health, an innovative primary care provider group, to its rapidly expanding Medicare Advantage (MA) network. The company’s value-based care agreement with Iora has paved the way for MA customers to access the primary care practices of Iora.
And last December, New York Life, America’s largest mutual life insurer, announced the acquisition of CI’s group life, accident, and disability insurance business for $6.3 billion. The divestment has brought CI’s debt levels down significantly and streamlined its operations. The company is now focusing on improving its profitability by controlling medical care costs.
CI’s results reflect revenue and earnings growth in a dynamic, rapidly changing environment, driven by focused execution across the ongoing businesses. Its total revenues have increased 14% year-over-year to $41.67 billion in the fourth quarter ended December 31, 2020, led primarily by a strong performance in its Evernorth segment. Its net income has risen 323.2% from the year-ago value to $4.14 billion, yielding an EPS of $11.45.
Analysts expect CI’s revenues to grow 4.7% year-over-year to $40.20 billion in the current quarter ending March 31, 2021. A consensus EPS estimate of $4.75 for the current quarter represents a slight improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 16.3% over the past six months.
CI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CI has a grade of A for both Value and Growth. It is also ranked #1 of 9 stocks in the A-rated Medical – Health Insurance industry. Beyond what we stated above, we also have given CI grades for Sentiment, Momentum, Stability, and Quality. Get all the CI ratings here.
Honda Motor Company, Ltd. (HMC)
Based in Japan, HMC is an auto manufacturer that develops, manufactures, and distributes motorcycles, automobiles, power products, and other auto products. The company is recognized internationally for its wide variety of products, ranging from small general-purpose engines to specialty sports cars, which incorporate its efficient internal combustion engine technology. It operates through four segments – Motorcycle Business, Automobile Business, Financial Services Business, and Life Creation Businesses.
HMC’s forward-12-month p/e of 11.26x is 48.7% lower than the industry average of 21.97x. In terms of trailing-12-month price/sales, the stock is currently trading at 0.40x, 71.7% lower than the industry average of 1.40x.
On November 24, HMC announced the development of a new model, the Rebel 1100, which is due to be released this year. The new cruiser motorcycle model is built using HMC’s dual-clutch transmission (DCT), thereby making it a state-of-the-art vehicle that fits all requirements of riders.
In addition, On January 19, Aquarius Engines, an Israel-based micro engine manufacturing major, signed a partnership deal with HMC-affiliate Musashi Seimitsu to co-develop electricity generators for the automotive and telecommunications industry. Last month, HMC also announced a collaboration with Cruise and General Motors (GM) on autonomous vehicles to create new value for mobility and to help with the future testing of self-driving cars.
HMC is currently redesigning one of its bestselling cars, the Honda Civic, which features a design like higher-end German cars. It is projected to be released in 2022. The prototype of the 11th generation Civic was recently debuted on the entertainment platform Twitch on November 12.
HMC’s automobile sales rose slightly year-over-year to 1.25 million units in the fiscal second quarter ended September 30, 2020. Its life creation segment sales rose 18.6% versus the same period last year to 1.16 million units. The company’s operating profit increased by 28.5% year-over-year to ¥282.90 billion, while its net profit rose 22.6% from the prior-year quarter to ¥196.50 billion.
Analysts expect HMC’s EPS to rise at a CAGR of 19.2% over the next five years. A consensus revenue estimate of $35.07 billion in the about-to-be-reported quarter (ended December 31, 2020) represents a 2.7% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 10.1% over the past six months.
It is no surprise that HMC has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. HMC has a grade of A for Value, and a B for both Stability and Quality. In the 50-stock, B-rated Auto & Vehicle Manufacturers Industry, it is ranked #3.
Beyond what we stated above, we have also given HMC grades for Growth, Momentum, and Sentiment. Get all the HMC ratings here.
POSCO (PKX)
PKX is a Korea-based company principally engaged in the manufacture and distribution of steel products. The Company operates its business through four segments: Steel, Construction, Trading, and Other segments, which includes power plants, information and communication related businesses.
PKX’s forward-12-month non-GAAP p/e of 9.12x is 56.5% lower than the industry average of 20.99x. In terms of trailing-12-month price/sales, the stock is currently trading at 0.37x, which is 75.7% lower than the industry average of 1.54x.
PKX’s aggregated earnings by segment has increased 4.3% sequentially to KRW21.95 trillion in the third quarter ended September 30, 2020. Its operating profit has risen 675.6% from the prior quarter to KRW667 billion, while its net profit improved 215% to KRW419 billion over the same period.
Analysts expect PKX’s revenues to grow 11.3% year-to-year to $55.39 billion in the fiscal 2021 ending December 31. The consensus EPS estimate of $6.52 for the current fiscal indicates a 99.4% improvement year-to-year. The stock has gained 43.7% over the past six months.
PKX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. PKX has a Sentiment and Value Grade of A and a Stability Grade of B. It is currently ranked #3 of 35 stocks in the B-rated Steel Industry.
Click here to see the additional POWR Ratings for PKX (Momentum, Growth, and Quality).
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CI shares were unchanged in after-hours trading Monday. Year-to-date, CI has declined -1.02%, versus a 4.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
The post 3 Value Stocks Rated "Strong Buy": Cigna, Honda Motor, and POSCO appeared first on StockNews.com