Earlier this month, the Federal Reserve raised interest rates by 75 basis points to tame the 40-year high inflation. Moreover, the Fed is expected to deliver another 75 basis-point interest rate hike next month, followed by a 50 basis-point rise in September. While the market witnessed a rebound last week, the expected monetary policy is adding fuel to recession concerns and will likely keep the market under significant pressure.
However, the extended market correction over the past couple of months has led several fundamentally strong stocks to trade at attractive valuations. Undervalued stocks with strong financials, healthy cash flows, and solid growth prospects could see a solid rebound when recession concerns subside.
Fundamentally sound stocks Adams Resource & Energy, Inc. (AE), Friedman Industries, Incorporated (FRD), First United Corporation (FUNC), and Gran Tierra Energy Inc. (GTE) are showing solid momentum lately but are trading at discounts to their peers. So, these stocks could be solid investments now. Each of these stocks possesses solid value and momentum attributes.
Adams Resource & Energy, Inc. (AE)
AE engages in the marketing, transportation, and storage of various crude oil and natural gas basins in the United States. The company operates through three segments: Crude Oil Marketing, Transportation and Storage; Tank Truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling and Storage of Crude Oil.
In the fiscal 2022 first quarter ended March 31, 2022, AE's revenues increased 137.9% year-over-year to $774.25 million. Its operating earnings grew 111.6% year-over-year to $8.15 million. The company's net earnings and earnings per share came in at $6.09 million and $1.39, registering a growth of 116.9% and 110.6%, respectively, from the prior-year period.
In terms of forward EV/Sales, AE is currently trading at 0.02x, 99% lower than the industry average of 1.75x. Its forward EV/EBITDA multiple of 1.76 is 69.9% lower than the industry average of 5.84x. Its forward Price/ Sales ratio of 0.04 compared with the industry average of 1.39.
The $764.88 million consensus revenue estimate for the fiscal year 2022, ending December 2022, represents a 51.6% growth from the previous year. Analysts expect AE’s EPS for the current year to increase 28.7% year-over-year to $3.54.
The stock has increased 14.3% over the six months and 12.6% year-to-date to close the last trading session at $31.32.
AE's POWR Ratings reflect this promising outlook. The stock has an overall grade of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
AE has a grade of A for Value and Momentum. It has a B grade for Sentiment and Quality. Within the B-rated Energy - Oil & Gas industry, it is ranked #1 of 98 stocks. Click here to see additional POWR Ratings (Stability and Growth) for AE.
Friedman Industries, Incorporated (FRD)
FRD engages in steel processing, pipe manufacturing and processing, and steel and pipe distribution businesses in the U.S. The company operates through two segments: Coil; and Tubular. The Coil segment involves converting steel coils into flat and plate sheet cuts. The Tubular segment produces line and oil country pipes for structural applications.
On May 02, 2022, FRD acquired two high-quality, strategically located facilities from Plateplus, Inc. In addition to the facilities acquired, FRD purchased the steel inventory and customer relationships at Plateplus’ Loudon and Houston locations.
This acquisition might position the company as a leading North American steel service center with an expanded geographic presence, scale, and processing capabilities.
In the fiscal 2022 third quarter ended December 31, 2021, FRD's net sales increased 181.2% year-over-year to $51.66 million. The company’s Coil segment sales grew 92.9% from the year-ago value to $41.80 million, and its Tubular segment sales rose 44.4% year-over-year to $9.86 million.
FRD is relatively undervalued compared to its peers. In terms of trailing-12-month EV/EBITDA, FRD is currently trading at 1.47x, 79.8% lower than the industry average of 7.28x. Its trailing-12-month Price/Sales multiple of 0.23 is 81.7% lower than the industry average of 1.25x.
The stock has declined 6.8% over the past month and 8.4% year-to-date to close the last trading session at $8.59.
FRD's POWR Ratings reflect this strong outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. FRD has a grade of A for Value, Growth, and Momentum and B for Quality. Within the A-rated Steel industry, it is ranked #9 of 33 stocks.
Click here to access additional POWR Ratings (Stability and Sentiment) for FRD.
First United Corporation (FUNC)
FUNC operates as the bank holding company for First United Bank & Trust, which offers various retail and commercial banking services. The company provides various deposit products, loans, and trust services. FUNC operates over 26 banking offices, one customer care center, and 34 automated teller machines.
FUNC's net interest income increased 9% year-over-year to $13.34 million in the fiscal 2022 first quarter ended March 31, 2022. Its income before taxes rose 68.2% year-over-year to $7.62 million. In addition, the company’s net income and net income per share came in at $5.72 million and $0.86, registering increases of 66.6% and 75.5%, respectively, year-over-year.
FUNC is trading at a discount to its peers. In terms of forward Non-GAAP P/E, it is currently trading at 5.03x, 48.6% lower than the industry average of 9.79x. Its forward Price/Sales multiple of 1.56 is 45.3% lower than the industry average of 2.86x.
The $18.41 million consensus revenue estimate for the fiscal 2022 second quarter, ending June 2022, represents a 5% improvement from the same period in 2021. Analysts expect FUNC’s EPS for the same quarter to increase 27.3% year-over-year to $0.84. The company has topped the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
The stock has slumped 6.9% over the past month to close the last trading session at $17.50.
FUNC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, equating to a Buy in our proprietary rating system. FUNC has a grade of A for Value, Momentum, and Sentiment. It has a B grade for Stability. Within the Mid-Atlantic Regional Banks industry, it is ranked #3 of 36 stocks.
To see additional POWR Ratings (Growth and Quality) for FUNC, click here.
Gran Tierra Energy Inc. (GTE)
Headquartered in Calgary, Canada, GTE engages in the exploration and production of oil and gas properties in Colombia and Ecuador. The company has total undeveloped reserves of more than 24.8 million barrels of oil equivalent in Colombia. Its assets in Colombia represent 100% of the company’s production with oil reserves.
GTE drilled and completed the ACR-91 infill development oil well, which was put into production on April 28, 2022. Also, in May 2022, the ACR-92 water injection well was drilled and completed. In total, the company has drilled seven development wells in Acordionero so far this year, and seven to nine new wells are planned for the rest of 2022.
In the fiscal 2022 first quarter ended March 31, 2022, GTE's oil sales grew 82.8% year-over-year to $174.57 million. Its adjusted EBITDA improved 184.9% from the year-ago value to $119.38 million. The company's net income and net income per share amounted to $14.12 million and $0.04, up 137.7% and 140% year-over-year, respectively.
In addition, net cash provided by operating activities rose 147.6% year-over-year to $103.83 million.
In terms of forward Non-GAAP P/E, GTE is currently trading at 2.77x, 60.5% lower than the industry average of 7.01x. Its forward EV/EBITDA multiple of 1.91 is 67.2% lower than the industry average of 5.84x. Its forward Price/Sales ratio of 0.51 compared with the industry average of 1.39.
The consensus revenue estimate of $907.47 million for the fiscal year 2022, ending December 2022, represents an increase of 60.6% from the year-ago value. The $0.53 consensus EPS estimate for the ongoing year indicates a 253.3% year-over-year rise. Also, analysts expect its EPS to improve at a 14.3% CAGR over the next five years.
The stock has gained 47.1% over the past six months and 41.3% over the past year to close the last trading session at $1.13.
GTE's POWR Ratings reflect a promising outlook. The stock has an overall grade of B, equating to a Buy in our proprietary rating system. GTE has a grade of A for Value and Momentum and B for Quality. Within the A-rated Foreign Oil & Gas industry, it is ranked #10 of 42 stocks.
To see additional POWR Ratings (Stability, Growth, and Sentiment) for GTE, click here.
AE shares were unchanged in premarket trading Monday. Year-to-date, AE has gained 14.17%, versus a -17.26% 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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