Still-high inflation and strong consumer spending strengthen the case for the Fed’s other interest rate hike in June. Amid growing rate-hike bets and the recent U.S. debt limit deal, the stock market is expected to remain highly volatile in the near term. Hence, it could be wise to invest in fundamentally strong stocks IES Holdings (IESC), Garett (GTX), and Jiayin (JFIN) for significant returns. Read on….
The stock market has witnessed enhanced volatility of late due to the recent U.S. debt ceiling deal and growing concerns over another interest rate hike at the Fed’s June meeting to curb persistent inflation and slow down demand, as evidenced by the April consumer spending report.
Amid a volatile market backdrop, investors could consider adding quality stocks IES Holdings, Inc. (IESC), Garrett Motion Inc. (GTX), and Jiayin Group Inc. (JFIN) to their portfolios owing to their strong fundamentals and bright growth outlook. Let’s dig deeper to understand why these stocks are positioned to deliver massive returns.
Starting in March 2022, the Federal Reserve has enacted ten consecutive interest rate hikes raising its benchmark rate to a range between 5% and 5.25%, the highest level since 2007. Despite the central bank’s efforts to bring down prices, inflation has persisted. Based on a Labor Department report, the consumer price index (CPI) rose 0.4% last month, up from a 0.1% increase in March.
On an annual basis, the inflation rate was 4.9%, slightly less than the 5% estimate and the lowest annual pace since April 2021. Although the CPI reading has cooled significantly since peaking out around 9% in June last year, it still held well above the Fed’s annual target of 2%.
High inflation reading coupled with stronger-than-expected consumer spending put the Fed in a tough position. Personal consumption expenditures (PCE) surged 0.8% last month after gaining 0.1% in March. According to economists polled by Reuters, consumer spending was estimated to rise 0.4%. Strong consumer spending is supported by wage gains in a tight labor market. Wages grew 0.5% in April compared to 0.3% in March.
While robust economic data suggest that the economy is far from the cliffs of recession, it could prompt the Fed to raise interest rates again in June. According to the CME FedWatch tool, there is more than a 65% chance of a 25-basis-point rate hike by the central bank at the June meeting.
Amid still-elevated inflation, an increased probability of another interest rate hike, and the recent U.S. debt ceiling deal, the stock market is expected to remain highly volatile in the near future.
Against the backdrop, quality stocks IESC, GTX, and JFIN could be ideal investments for solid gains. Despite volatile market conditions, these stocks have delivered massive returns due to their fundamental strength.
IES Holdings, Inc. (IESC)
IESC designs and installs integrated electrical and technology systems in the United States. It also provides infrastructure products and services. The company operates through four business segments: Commercial & Industrial; Communications; Infrastructure Solutions; and Residential.
In terms of trailing-12-month P/E, IESC’s 15.33x is 17.5% lower than the industry average of 18.60x. Also, the stock’s trailing-12-month EV/Sales and Price/Sales multiples of 0.46 and 0.42 are 71.8% and 67.5% lower than industry averages of 1.62 and 1.29, respectively.
IESC’s revenues increased 13.4% year-over-year to $568.90 million for the second quarter that ended March 31, 2023. The company’s gross profit grew 72.5% from the prior-year period to $100.90 million. Its operating income came in at $31.60 million, compared to an operating loss of $4.90 million in the prior year’s period. Also, its adjusted EBITDA rose 4,000% year-over-year to $36.90 million.
In addition, the adjusted net income attributable to IESC was $24.60 million, versus an adjusted net loss of $6.60 million in the previous year’s quarter. Its adjusted earnings per share attributable to common stockholders stood at $1.07, compared to an adjusted loss per share of $0.36 in the prior-year period.
Over the past six months, the stock has gained 44.4% and 58.3% over the past year to close the last trading session at $47.88. The stock is currently trading above its 50-day and 200-day moving averages of $44.24 and $37.11, respectively, indicating an uptrend.
IESC’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.
IESC has an A grade for Growth and a B for Value, Quality, and Sentiment. It topped among 80 stocks in the B-rated Industrial-Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see IESC’s ratings for Stability and Momentum here.
Garrett Motion Inc. (GTX)
GTX designs, manufactures and sells turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers (OEMs) globally. The company provides light-vehicle gasoline, light-vehicle diesel, and commercial vehicle turbochargers; and automotive software solutions.
On April 13, GTX announced that it had entered into definitive agreements with Centerbridge Partners, L.P. and funds managed by Oaktree Capital Management, L.P. to simplify its capital structure by converting all outstanding Series A Preferred Stock into a single class of Common Stock on or about July 3, 2023. The Board authorized an increase in the general stock buyback program to $250 million.
Danial Ninivaggi, Chairman of GTX’s Board of Directors, said, “By converting to a single class of common stock, with much greater market capitalization and liquidity, we expect to broaden and diversify our shareholder base and engage more effectively with the investment community. The Board strongly believes that this will provide more financial flexibility to Garrett in the future and benefit all shareholders.”
GTX’s forward EV/Sales of 0.36x is 66.4% lower than the industry average of 1.08x. Likewise, the stock’s forward EV/EBITDA multiple of 2.28x is 75.3% lower than the industry average of 9.23x.
For the first quarter that ended March 31, 2023, GTX’s net sales increased 7.7% year-over-year to $970 million, and its gross profit grew 8% from the prior-year quarter to $189 million. The company’s adjusted EBITDA rose 15.1% year-over-year to $168 million. Also, its adjusted free cash flow came in at $88 million, up 131.6% year-over-year.
The consensus revenue estimate of $3.98 billion for the fiscal year (ending December 2023) reflects a 10.6% year-over-year improvement. Likewise, the consensus EPS estimate of $1 for the ongoing year indicates a 33.3% rise year-over-year. In addition, analysts expect GTX’s revenue and EPS to grow 4.3% and 27.3% to $4.15 billion and $1.27, respectively.
Over the past six months, the stock has gained 13.9% and 32.5% over the past year to close the last trading session at $8.12. It is currently trading above its 50-day and 200-day moving averages of $7.92 and $7.42, respectively, indicating an uptrend.
GTX’s POWR Ratings reflect its promising outlook. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
GTX has an A grade for Growth and Value. It also has a B grade for Quality. Within the A-rated Auto Parts industry, GTX is ranked #3 out of 58 stocks.
Beyond what is stated above, we’ve also rated GTX for Sentiment, Momentum, and Stability. Get all the GTX ratings here.
Jiayin Group Inc. (JFIN)
Headquartered in Shanghai, China, JFIN provides online consumer finance services. It operates a fintech platform that facilitates secure and fast connections between individual borrowers and financial institutions’ funding partners. In addition, the company offers referral services for investment products by the financial service providers; and software development, risk control, and IT assistant services.
In terms of trailing-12-month P/E, JFIN’s 1.73x is 80.8% lower than the industry average of 8.99x. The stock’s trailing-12-month EV/EBITDA of 1.47x is 87.7% lower than the industry average of 12.03x. Also, its trailing-12-month Price/Sales multiple of 0.62 is 71.5% lower than the industry average of 2.19.
JFIN’s net revenue for the fourth quarter ended December 31, 2022, increased 186.4% year-over-year to $152.90 million. Revenue from loan facilitation services was $130.40 million, up 149.2% from the prior-year period. The increase was primarily due to increased loan origination volume from JFIN’s institutional funding partners. Its income from operations was $50.20 million, up 2,257.1% year-over-year.
Furthermore, the company’s net income came in at $77.40 million, an increase of 335.7% year-over-year, while its net income per share rose 249% from the year-ago value to $0.36.
Shares of JFIN have gained 28.3% over the past month and 217.3% over the past year to close the last trading session at $5.49. The stock is currently trading above its 50-day and 200-day moving averages of $4.32 and $3.02, respectively, indicating an uptrend.
JFIN’s POWR Ratings reflect this solid outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
JFIN has an A grade for Growth and a B for Value, Sentiment, and Quality. It is ranked first among 101 stocks in the Financial Services (Enterprise) industry.
Click here to see the other ratings of JFIN for Momentum and Stability.
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IESC shares were unchanged in premarket trading Monday. Year-to-date, IESC has gained 34.61%, versus a 10.25% 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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Mangeet Kaur Bouns
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