Amid concerns of the economy heading into a recession, one could capitalize on stocks currently trading at a discount to its peers. Therefore, it could be wise to buy fundamentally strong undervalued stocks Mondi plc (MONDY), Nu Skin Enterprises (NUS), and Garrett Motion (GTX). Keep reading.
The macroeconomic headwinds of high inflation and aggressive interest rates over the past year have pressured quality stocks, causing them to trade at prices lower than their actual value.
However, with inflation continuing to retreat, as was evident during March's 5% increase annually, fundamentally strong stocks Mondi plc (MONDY), Nu Skin Enterprises, Inc. (NUS), and Garrett Motion Inc. (GTX) could be promising buys considering their discounted valuations.
Before diving deeper into the fundamentals of these stocks, let's discuss the factors likely to keep the stock market under pressure this year.
Although inflation shows signs of easing, thanks to the Federal Reserve's tight monetary policy, it stays above its comfort level. The Fed has raised rates nine times since March last year, with the policy rate now in a range of 4.75% to 5%.
With high inflation and strong job growth, officials now project one more rate hike to between 5% and 5.25%, the highest since mid-2007.
The market fears this could tip the economy into a recession. Value stocks have historically performed well amid high-interest rates, outperforming growth stocks. Investors' interest in value stocks is evident from the Vanguard Value ETF's (VTV) 4.4% returns over the past month.
Given these factors, investors could benefit from buying fundamentally strong stocks MONDY, NUS, and GTX, trading at a discount to their peers.
Mondi plc (MONDY)
Based in Weybridge, the United Kingdom, MONDY manufactures and sells packaging and paper products worldwide. It operates in Corrugated Packaging, Flexible Packaging, Personal Care Components, and Uncoated Fine Paper segments.
In terms of forward EV/Sales, MONDY's 1.02x is 29.5% lower than the 1.45x industry average. Its 0.86x forward Price/Sales is 19.4% lower than the industry average of 1.07x. Likewise, its 8.30x forward EV/EBIT is 23.4% lower than the 10.84x industry average.
MONDY's group revenue for the fiscal year ended December 31, 2022, increased 27.6% year-over-year to €8.90 billion ($9.80 billion). The company's profit for the year attributable to shareholders increased 92.1% year-over-year to €1.45 billion ($1.60 billion).
Additionally, its total EPS from continuing operations came in at 244.40 cents, representing a 118.4% increase from the prior-year period.
Over the past month, the stock has fallen 1.4% to close the last trading session at $31.17.
MONDY's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Industrial - Packaging industry, it is ranked #4 out of 22 stocks. It has a B grade for Value, Momentum, Stability, and Quality. We have also given MONDY grades for Growth and Sentiment. Get all MONDY ratings here.
Nu Skin Enterprises, Inc. (NUS)
NUS develops and distributes various beauty and wellness products worldwide. It offers skincare devices, cosmetics, and other personal care products.
In terms of forward non-GAAP P/E, NUS' 15.60x is 19.2% lower than the 19.31x industry average. Its 1.06x forward EV/Sales is 38.7% lower than the 1.73x industry average. Likewise, its 8.59x forward EV/EBITDA is 29.7% lower than the 12.22x industry average.
NUS' operating income for the fourth quarter ended December 31, 2022, increased 35.1% year-over-year to $27.46 million. The company's net income came in at $57.22 million, compared to a net loss of $9.23 million in the prior-year quarter. Moreover, its net EPS came in at $1.15, compared to a net loss per share of $0.18 in the year-ago period.
NUS' EPS for the quarter ending September 30, 2023, is expected to increase 42.2% year-over-year to $0.67. Its revenue for fiscal 2024 is expected to increase 2.6% year-over-year to $2.15 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 4.5% to close the last trading session at $39.83.
NUS' POWR Ratings reflect its positive outlook. It has an overall rating of B, which equates to a Buy.
It is ranked #5 out of 7 stocks in the A-rated Medical - Consumer Goods industry. In addition, it has an A grade for Value and Quality. Click here to see the other ratings of NUS for Growth, Momentum, Stability, and Sentiment.
Garrett Motion Inc. (GTX)
Headquartered in Rolle, Switzerland, GTX designs, manufactures, and sells turbochargers and electric-boosting technologies for light and commercial vehicle original equipment manufacturers worldwide. The company offers light vehicle gasoline and diesel, commercial vehicle turbochargers, and provides automotive software solutions.
On April 13, 2023, GTX announced that it has entered into definitive agreements with Centerbridge Partners, L.P. and funds managed by Oaktree Capital Management, L.P. to simplify the company's capital structure by converting all outstanding Series A Preferred Stock into a single class of Common Stock.
This conversion is expected to broaden and diversify GTIX's shareholder base and engage more effectively with the investment community.
In terms of forward EV/Sales, GTX's 0.38x is 65.7% lower than the 1.11x industry average. Its 2.40x forward EV/EBITDA is 74.2% lower than the 9.30x industry average. Likewise, its 0.14x forward Price/Sales is 83.3% lower than the 0.83x industry average.
GTX's net sales for the first quarter that ended March 31, 2023, increased 7.7% year-year-over-year to $970 million. Its gross profit increased 8% year-over-year to $189 million. Additionally, it's adjusted EBITDA increased 15.1% year-over-year to $168 million.
GTX's EPS and revenue for the quarter ending June 30, 2023, are expected to increase 51.3% and 10.6% year-over-year to $0.23 and $950 million, respectively. Over the past six months, the stock has gained 39.7% to close the last trading session at $8.16.
It is no surprise that GTX has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked #2 out of 60 stocks in the A-rated Auto Parts industry. In addition, it has an A grade for Growth and Value and a B for Momentum and Quality.
In total, we rate GTX on eight different levels. Beyond what we stated above, we have also given GTX grades for Stability and Sentiment. Click here to access all the ratings.
What To Do Next?
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MONDY shares were unchanged in premarket trading Wednesday. Year-to-date, MONDY has declined -4.49%, versus a 6.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research.With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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