Growing concerns about strong economic data in the face of aggressive Federal Reserve interest-rate hikes have puzzled everyone lately. However, the Fed remains adamant about increasing rates until the 2% target is achieved.
Against this backdrop, let us inspect the strong fundamentals of Valero Energy Corporation (VLO), Canon Inc. (CAJ), and United Microelectronics Corporation (UMC) that could help your money to start working for stable returns.
The stock market rally lost steam in February as a rise in bond yields and concerns of a potentially larger-than-expected hike from the Federal Reserve have fueled investor concern in recent days, putting a dent in the early 2023 rally.
As investors keep an eye on the Federal Reserve's next move, two Fed officials indicated that aggressive interest rate hikes are likely necessary to ease inflation. After concerning inflation and jobs data, the Fed might need to raise its policy rate by 50 basis points to a range of 5%-5.25% and hold it at that level until well into 2024.
Meanwhile, some experts anticipate that such persistent interest rate hikes could trigger a painful downturn in the second quarter of this year.
Amid heightened market volatility, fundamentally strong dividend-paying stocks VLO, CAJ, and UMC might be solid buys to yield significant returns in the near future.
Valero Energy Corporation (VLO)
VLO is a manufacturer and marketer of petroleum-based and low-carbon liquid transportation fuels and petrochemical products. The company operates in three segments: Refining; Renewable Diesel; and Ethanol. Its offerings include conventional, premium, and reformulated gasoline, California Air Resources Board (CARB) gasoline and diesel, and other refined petroleum products.
On January 31, the company announced the increase of its quarterly dividend from $0.98 per share to $1.02 per share. This dividend is payable to its shareholders on March 16, 2023.
VLO’s four-year average dividend yield is 5.01%, and its forward annual dividend of $4.08 translates to a 2.93% yield on prevailing prices. Its dividend has grown at a 2.5% CAGR over the past three years and a 6.4% CAGR over the past five years.
The stock’s trailing 12-month ROCE of 54.70% is 143.6% higher than the industry average of 22.46%. Likewise, the stock’s trailing-12-month ROTC and ROTA of 27.04% and 18.90% compare to the industry averages of 9.18% and 7.81%, respectively.
VLO’s revenues increased 16.3% year-over-year to $41.75 billion in the fiscal 2022 fourth quarter (ended December 31, 2022). Its operating income improved 169.4% year-over-year to $4.29 billion. Adjusted net income attributable to VLO came in at $3.23 billion, up 226.6% year-over-year. The company’s adjusted earnings per share came in at $8.45, registering an increase of 250.6% from the prior-year period.
Street expects VLO’s EPS for the first quarter (ending March 31, 2023) to increase 189.6% year-over-year to $6.69. Its revenue is expected to increase 2.6% year-over-year to $39.56 billion. Moreover, the company surpassed the EPS estimates in each of the trailing four quarters, which is promising.
Over the past year, the stock has gained 72.8% to close the last trading session at $139.29.
VLO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates 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 Momentum and a B for Growth, Value, and Quality. In the B-rated Energy - Oil & Gas industry, it is ranked #2 out of 91 stocks. Click here to see the other ratings of VLO for Stability and Sentiment.
Canon Inc. (CAJ)
Headquartered in Tokyo, Japan, CAJ manufactures and sells office multifunction devices, plain paper copying machines, laser and inkjet printers, cameras, diagnostic equipment, and lithography equipment. It operates through four segments: Printing Business Unit; Imaging Business Unit; Medical Business Unit; and Industrial and Others Business Unit.
On February 21, the company launched the MS-001, a high-precision wafer alignment1 measurement device for semiconductor lithography systems. This equipment is designed to improve the productivity of lithography systems, enabling high-precision alignment for increasingly complex semiconductor manufacturing processes. With the growing complexity of the manufacturing process, this device is expected to be heavily demanded by users.
In terms of the trailing-12-month EBIT margin, CAJ’s 8.77% is 38.8% higher than the 6.32% industry average. Also, its 6.05% trailing-12-month net income margin is 109.5% higher than the industry average of 2.89%.
CAJ’s net sales for the fiscal fourth quarter that ended December 31, 2022, increased 14.7% year-over-year to ¥4.03trillion ($29.63 billion). The company’s operating profit grew 25.4% from the year-ago value to ¥353.39 billion ($2.60 billion), while net income attributable to CAJ increased 13.6% year-over-year to ¥243.96 billion ($1.79 billion). In addition, its net income per share came in at ¥236.63, up 13.6% year-over-year.
Analysts expect CAJ’s EPS and revenue for the quarter ending March 31, 2023, to increase 30% and 2.8% year-over-year to $0.47 and $7.10 billion, respectively. The stock has declined marginally year-to-date to close the last trading session at $21.57.
It is no surprise that CAJ has an overall rating of B, which translates to Buy in our proprietary rating system. It is ranked #5 out of 42 stocks in the Technology – Hardware industry. In addition, it has a B grade for Value, Stability, and Quality.
We have also given CAJ grades for Growth, Momentum, and Sentiment. Get all CAJ ratings here.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a global semiconductor foundry that operates through two segments: Wafer Fabrication and New Business. It offers high-quality IC fabrication services, focusing on logic and various specialty technologies to all electronics industry sectors.
Recently, UMC unveiled its 28eHV+ platform, the newest enhancement to its industry-leading 28nm embedded high voltage (eHV) technology. With greater power efficiency and premium visual quality, 28eHV+ is an ideal display driver solution to power next-generation displays in wireless, VR/AR, and IoT applications.
On February 1, UMC and Cadence Design Systems, Inc. (CDNS) announced that the Cadence® 3D-IC reference flow, featuring the Integrity™ 3D-IC Platform, had been certified for UMC’s chip stacking technologies, enabling faster time to market. UMC’s hybrid bonding solutions are efficient in supporting integration across a broad range of technology nodes that are suitable for edge AI, image processing, and wireless communication applications.
Osbert Cheng, vice president of device technology development & design support at UMC, stated, “Cost-effectiveness and design reliability are the pillars of UMC’s hybrid bonding technologies, and this collaboration with Cadence provides mutual customers with both, helping them reap the benefits of 3D structures while also accelerating the time needed to complete their integrated designs.”
UMC’s operating revenues increased 14.8% year-over-year to NT$67.84 billion ($2.22 billion) for the fourth quarter that ended December 31, 2022. Its gross profit increased 26.1% year-over-year to NT$29.12 billion ($952.10 million). The company’s net income increased 19.6% year-over-year to NT$19.07 billion ($623.51 million), while its EPS came in at NT$1.54, representing an increase of 18.5% year-over-year.
The stock’s trailing 12-month net income margin of 31.29% is 983.3% higher than the industry average of 2.89%. Additionally, its trailing-12-month ROTA and CAPEX/Sales of 16.36% and 28.75% compare to the industry averages of 1.52% and 2.42%, respectively.
UMC’s EPS and revenue for the fiscal year 2024 are expected to increase 22.4% and 11.4% year-over-year to $0.92 and $8.67 billion, respectively. It surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 37.1% to close the last trading session at $8.26.
UMC’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Momentum. It is ranked #5 out of 92 stocks in the Semiconductor & Wireless Chip industry. Click here to see the additional ratings of UMC (Growth, Stability, and Sentiment).
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VLO shares were trading at $138.16 per share on Thursday afternoon, down $1.13 (-0.81%). Year-to-date, VLO has gained 9.70%, versus a 2.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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