Weekly jobless claims dropped last week, a sign that the labor market is still strong, which could prompt the Fed to continue its rate hikes. Moreover, as per “Dr. Doom” economist Nouriel Roubini, a “perfect storm” is brewing this year, which will hit the market with a recession, debt crisis, and out-of-control inflation.
Amidst the major macroeconomic headwinds, I think it is ideal to invest in fundamentally solid stocks Stellantis N.V. (STLA), General Motors Company (GM), Textron Inc. (TXT), and Modine Manufacturing Company (MOD) which have the potential to withstand a market downturn.
The Labor Department reported that jobless claims in the U.S. for the week ending February 25 fell to 190,000 from 192,000 the previous week. It’s the seventh straight week in which claims were under 200,000. As a result, some economists now expect the Fed to raise its benchmark rate by a hefty half-percentage point in the upcoming policy meeting.
As the U.S. economy remains resilient. Jamie Dimon, CEO of JPMorgan Chase, recently said that containing inflation remains a work in progress for the Federal Reserve. He expects that interest rates could “possibly” remain higher for longer, as it may take the central bank “a while” to get to its goal of 2% inflation.
Moreover, economist Nouriel Roubini, one of the first economists to call the 2008 recession, has warned for months of a stagflationary debt crisis, which would combine the worst aspects of the 70s-style stagflation and the 2008 debt crisis.
Also, Roubini estimated that the Federal Reserve would need to lift benchmark rates “well above" 6% for inflation to fall back to its 2% target.
So, let's dive deeper into the stocks mentioned above:
Stellantis N.V. (STLA)
Headquartered in Hoofddorp, Netherlands, STLA designs, engineers, manufactures, distributes, and sells vehicles, components, and production systems. The company’s brand portfolio includes Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Ram, Peugeot, Citroen, DS Automobiles, Opel and Vauxhall, and Maserati.
On February 28, 2023, STLA announced that it will invest a total of $155 million in three Kokomo, Indiana, plants to produce new electric drive modules (EDM) that will help power future electric vehicles assembled in North America and support the goal of 50% battery electric sales in the U.S. by 2030.
Since 2020, STLA has invested nearly $3.30 billion in Indiana to support its transition to electrification. These investments support the company’s ambition to achieve carbon net zero by 2038, as set out in its Dare Forward 2030 strategic plan.
While STLA’s four-year average dividend yield is 10.70%, its current dividend of $1.43 translates to a yield of 7.80% on the prevailing price level. STLA’s dividend payouts have grown at a 17.3% CAGR over the last three years.
In terms of forward non-GAAP P/E, STLA is currently trading at 4.19x, which is 71.6% lower than the industry average of 14.78x. Its forward EV/EBIT multiple of 1.63 is 87.8% lower than the industry average of 13.30.
STLA’s net revenues increased 18% year-over-year to €179.59 billion ($190.71 billion) in the fiscal year that ended December 31, 2022. Its operating income rose 25.3% from the prior-year period to €23.32 billion ($24.76 billion), and net profit grew 29.5% year-over-year to €16.78 billion ($17.82 billion).
Street expects STLA’s revenue to increase 9% year-over-year to $47.68 billion in the fiscal first quarter ending March 2023. It has surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 40.2% to close the last trading session at $18.35. It has gained 10.5% over the past month.
STLA’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Value and Sentiment and a B for Stability and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked first among 61 stocks.
Beyond what we’ve stated above, we have also given grades for Growth, Momentum, and Quality. Get all the STLA ratings here.
General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, automobile parts, and accessories worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.
On February 9, GM and GlobalFoundries Inc. (GFS) announced a long-term strategic agreement to establish a dedicated capacity corridor exclusively for GM’s chip supply. This agreement supports GM’s strategy to reduce the number of unique chips needed to power increasingly complex and tech-laden vehicles.
GM’s current annual dividend of $0.36 translates to a 0.93% yield on the current market price, and its four-year average dividend yield is 1.98%.
GM’s forward Price/Book multiple of 0.73 is 73.4% lower than the industry average of 2.73. Its forward non-GAAP P/E of 6.40x is 56.7% lower than the industry average of 14.78x.
During the fiscal fourth quarter that ended December 31, 2022, GM’s revenue increased 28.4% year-over-year to $43.11 billion. Its net income attributable to stockholders increased 14.8% year-over-year to $2 billion. In addition, its adjusted EPS came in at $2.12, representing a 57% increase from the prior-year quarter.
GM’s revenue is expected to increase 12.2% year-over-year to $40.13 billion for the quarter ending June 30, 2023. Its EPS is expected to increase 41.4% year-over-year to $1.61 in the same quarter. It has surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of GM have gained 17.5% year-to-date to close the last trading session at $39.53. It gained 2.3% intraday.
GM’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It also has a B grade for Growth, Value, and Sentiment. In the Auto & Vehicle Manufacturers industry, it is ranked #20.
Click here to see the additional POWR Ratings of GM (Momentum, Stability, and Quality).
Textron Inc. (TXT)
TXT engages in the aerospace, defense, and manufacturing businesses. Its segments include Textron Aviation; Bell; Textron Systems; Industrial; and Finance. The company builds and sells commercial jets, military trainers, and defense aircraft. It also offers finance for new and pre-owned aircraft and bell helicopters.
On February 22, TXT declared a quarterly dividend of $0.02 per share on the company’s common stock, payable on April 1, 2023.
TXT pays $0.08 annually as dividends, which translates to a yield of 0.11% at the current price. Its 4-year average dividend yield is 0.16%. Also, it has paid dividends for 33 consecutive years.
On December 21, 2022, TXT’s Textron Aviation announced that Aerus, a new regional airline in Mexico, would begin operations by purchasing two 19-passenger configurations of Cessna SkyCourier twin-engine turboprops and four Cessna Grand Caravan EX turboprops. This should aid in the company’s growth and boost its revenue stream.
TXT’s forward EV/Sales multiple of 1.24x is 27.8% lower than the industry average of 1.72x. Its forward non-GAAP P/E of 14.91x is 16.1% lower than the industry average of 17.77X.
TXT’s total revenue increased 9.5% year-over-year to $3.64 billion in the fourth quarter that ended December 31, 2022. Its income from continuing operations rose 9.2% from the year-ago value to $226 million. In addition, the company’s net income grew 9.2% year-over-year to $226 million, and its EPS rose 15.1% year-over-year to $1.07.
TXT’s revenue is expected to increase 4.8% year-over-year to $3.15 billion in the fiscal first quarter ending March 2023. The company’s EPS for the same quarter is expected to rise 13.7% from the prior-year quarter to $1.00. Moreover, the company surpassed its consensus estimates in three of four trailing quarters.
Shares of TXT have gained 20.4% over the past six months to close the last trading session at $74.48.
TXT has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
TXT has a B grade for Value and Quality. It is ranked #3 in the 75-stock Air/Defense Services industry.
To see additional POWR Ratings for Growth, Stability, Sentiment, and Momentum for TXT, click here.
Modine Manufacturing Company (MOD)
MOD provides engineered heat transfer systems and heat transfer components for use in on- and off-highway original equipment manufacturer (OEM) vehicular applications. It operates in two segments: Climate Solutions and Performance Technologies.
On February 8, 2023, MOD announced the launch of Sentinel High Humidity, designed to provide accurate temperature and humidity control in humid climates. It continues to showcase its commitment to providing K-12 schools with adequate, comfortable ventilation solutions.
MOD’s forward non-GAAP PEG of 0.84x is 43.6% lower than the industry average of 1.49x. Its forward Price/Sales multiple of 0.59 is 36.6% lower than the industry average of 0.93.
MOD’s net sales rose 11.5% year-over-year to $560 million in the fiscal third quarter ending December 31, driven by sales volume improvements and favorable commercial pricing in both the Climate Solutions and Performance Technologies segments. Its gross profit grew 30.8% year-over-year to $97.60 million. Also, its adjusted EPS increased 54.8% year-over-year to $0.48.
Analysts expect MOD’s EPS to increase 43.8% year-over-year to $0.46 in the first fiscal quarter ending June 2023. Its revenue is expected to grow 5.7% year-over-year to $517.77 million. It surpassed EPS estimates in all four trailing quarters.
Over the past nine months, the stock has gained 113.3% to close the last trading session at $25.55. It has gained 20.4% over the past three months.
It is no surprise that MOD has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Growth and a B for Value and Momentum. MOD is ranked #15 out of 61 stocks in the A-rated Auto Parts industry.
Click here to see the additional POWR Ratings for MOD for Stability, Sentiment, and Quality.
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STLA shares were unchanged in premarket trading Friday. Year-to-date, STLA has gained 29.23%, versus a 4.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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