The Fed’s hawkish stance to deal with the stubborn inflation has led to massive sell-offs in the stock market. The S&P 500 index is down more than 22% this year. The central bank expects to maintain its approach until it hits a terminal rate of 4.6%, which could hurt the stock market further.
However, the market sell-offs have created some lucrative investment opportunities. Since stark rallies typically follow market bottoms, this might be the opportune time to pick quality stocks with solid rebound potential.
According to a recent Wells Fargo Investment Institute study, “over the past 30 years, missing the best 20 days (based on S&P 500 Index returns from September 1, 1992 through August 31, 2022) took the annual average return from 7.8% per year down to 3.2%, which was less than the 3.3% average inflation rate over that same period.”
Hence, we believe quality stocks Valero Energy Corporation (VLO), Tripadvisor, Inc. (TRIP), and Rambus Inc. (RMBS) are solid buys at their current price levels. These stocks might witness big rebounds, given their solid fundamentals and growth prospects.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products. The company operates through its three broad segments – Refining; Renewable Diesel; and Ethanol.
In September, VLO announced that it had reduced its debt by approximately $1.25 billion through its previously announced tender offers for various series of senior notes. The company also declared a collective debt reduction of about $3.60 billion through transactions in the second half of 2021 and the first half of 2022.
In July, VLO declared a quarterly dividend of $0.98 per share on its common stock. This was payable to shareholders on September 1, reflecting the company’s ability to pay back its shareholders.
For the fiscal second quarter that ended June 30, VLO’s revenues increased 86.1% year-over-year to $51.64 billion. The adjusted net income attributable to VLO stockholders rose significantly from the prior-year quarter to $4.61 billion. Adjusted earnings per common share improved significantly from the prior-year period to $11.36.
VLO’s net income and EPS have grown at 40.3% and 41.8% CAGRs over the past three years. The consensus EPS estimate of $6.99 for the fiscal third quarter that ended September 2022 indicates a 472.8% year-over-year improvement.
The consensus revenue estimate for the same period of $43.62 billion indicates a 47.8% year-over-year growth. In addition, VLO has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 46.8% over the past year and 53.8% year-to-date to close its last trading session at $115.50.
VLO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating 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.
VLO has a Growth and Momentum grade of A and a Value and Quality grade of B. In the 94-stock Energy – Oil & Gas industry, it is ranked #8. The industry is rated B.
Click here to see the additional POWR Ratings for VLO (Stability and Sentiment).
Tripadvisor, Inc. (TRIP)
Online travel company TRIP operates through its two broad segments - Hotels, Media & Platform and Experiences & Dining. The company operates its branded websites and manages other travel media brands.
In September, TRIP announced the launch of its in-house creative and content studio Wanderlab. This is expected to connect the right advertisers with the right consumers, which should benefit the company.
In August, it was reported that the Weather Channel digital properties had teamed with TRIP and USA TODAY to offer consumers premium subscription bundles. Brad Soroca, VP of Business Development at TRIP, said, "With the continued evolution of travel subscription services, it was the perfect opportunity for two leading brands in adjacent spaces to join together to bring incredible service and value to travelers."
TRIP’s revenue increased 77% year-over-year to $417 million in the fiscal second quarter that ended June 30. Non-GAAP net income and non-GAAP EPS came in at $54 million and $0.37, up substantially from their negative year-ago values. Free cash flow rose 152% from the prior-year period to $282 million.
Analysts expect TRIP’s EPS to improve 138.9% year-over-year to $0.38 in the fiscal third quarter (ended September 2022). Likewise, Street expects the company’s revenue for the same quarter to increase 46.6% year-over-year to $444.04 million.
Over the past three months, the stock has gained 34.4%. It has gained 5.2% over the past five days to close its last trading session at $23.30.
It’s no surprise that TRIP has an overall B rating, which translates to Buy in our POWR Ratings system. It also has an A grade for Growth and Quality. It is ranked #5 in the 63-stock Internet industry.
To see the additional POWR Ratings for Value, Momentum, Stability, and Sentiment for TRIP, click here.
Rambus Inc. (RMBS)
RMBS offers semiconductor products internationally. The company provides DDR memory interface chips to module manufacturers and OEMs, silicon IP that moves data in advanced applications, and physical interface and digital controller IP to offer industry-leading, integrated memory and interconnect subsystems.
Last month, RMBS declared that it had initiated an accelerated share repurchase program with Wells Fargo Bank, National Association, to repurchase an aggregate of approximately $100 million of its common stock. This underscores the company’s faith in its prospects and ability for long-term shareholder returns.
In July, the company announced an expansion of its DDR5 memory interface chip portfolio with the introduction of the Rambus SPD (Serial Presence Detect) Hub and Temperature Sensor. The portfolio enhancements should drive the company’s revenue.
For the fiscal second quarter that ended June 30, RMBS’ total revenue increased 42.7% year-over-year to $121.13 million. Net income and net income per share came in at $35.02 million and $0.31, up 213.6% and 210% from the prior-year quarter, respectively.
RMBS’ revenue has grown at an 18.7% CAGR over the past three years. Street EPS and revenue estimates of $0.13 and $140.90 million for the fiscal third quarter (ended September 2022) indicate 322.2% and 23.3% year-over-year rises, respectively.
RMBS’ shares have gained 19.1% over the past year and 19.9% over the past three months to close its last trading session at $26.45.
This promising prospect is reflected in RMBS’ POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
RMBS has a Growth grade of A and a Sentiment and Quality grade of B. In the 93-stock Semiconductor & Wireless Chip industry, it is ranked #15. The industry is rated B.
In addition to the POWR Rating grades we’ve stated above, one can see RMBS ratings for Value, Momentum, and Stability here.
VLO shares fell $115.50 (-100.00%) in premarket trading Tuesday. Year-to-date, VLO has gained 58.18%, versus a -21.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.Get in on These 3 Stocks Before They Explode appeared first on StockNews.com