With the Fed's intention to keep raising interest rates this year and mounting recession concerns, market volatility is expected to remain elevated in the near term. However, it could be an opportune time to invest in fundamentally sound stocks, Ambev (ABEV), trivago (TRVG), and Data Storage (DTST), which are currently trading at discounts to their peers. Continue reading….
Amid heightened macroeconomic uncertainty due to multi-decade-high inflation, the Fed's aggressive rate hikes, and Russia's outright invasion of Ukraine, major market indices struggled significantly in 2022.
However, inflation is retreating, with the rise in consumer prices slowing for a sixth straight month. The Consumer Price Index (CPI) rose 6.5% in December compared to a year ago, down from a peak of 9.1% in June last year. Despite the slowdown in price increases, inflation continues to hover much above the Fed's target of 2%.
Although Fed officials will likely slow the pace of their interest-rate hikes, there are debates on how much more they need to tighten to bring inflation under control. Fed Governor Christopher Waller, joining other policymakers, backed another moderation in the size of rate hikes and favored a 25 basis point increase at the FOMO's next meeting.
While continued rate increases can help slow down inflation, they can also potentially tip the economy into a recession. According to Bankrate's fourth-quarter economic indicator survey, the U.S. economy has a 64% likelihood of contracting in 2023.
In the face of the Fed's consecutive rate hikes, growing recession fears, and other macro uncertainties, the stock market ended last year with a decline and is projected to remain highly volatile in the near term. However, this creates an opportunity for investors to scoop up high-quality stocks, which are now trading at affordable prices.
We think fundamentally strong stocks, Ambev S.A. (ABEV), trivago N.V. (TRVG), and Data Storage Corporation (DTST), trading at attractive valuations, could be ideal buys for investors on a budget.
Ambev S.A. (ABEV)
ABEV produces, distributes, and sells beer, draft beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. The company operates through four segments: Brazil; Central America and the Caribbean; Latin America South; and Canada. The company is headquartered in São Paulo, Brazil.
In terms of forward non-GAAP P/E, ABEV is trading at 16.40x, which is 12.7% lower than the industry average of 18.78x. Its forward EV/EBITDA multiple of 8.44 is 27.1% lower than the industry average of 11.57. Moreover, the stock's forward Price/Book of 2.65x is 13% lower than the 3.05x industry average.
For the fiscal 2022 third quarter ended September 30, 2022, ABEV's net revenue increased 11.3% year-over-year to R$20.59 billion ($3.95 billion), while its gross profit grew 7.6% year-over-year to R$9.93 billion ($1.91 billion). The company's normalized EBITDA increased 2.4% year-over-year to R$5.60 billion ($1.07 billion).
Analysts expect ABEV's revenue and EPS for the current fiscal year (ending December 2023) to increase 7.9% and 3.2% year-over-year to $16.84 billion and $0.16, respectively. Moreover, the company has surpassed the consensus EPS estimates in all trailing four quarters, which is impressive.
Shares of ABEV have gained marginally over the past six months to close its last trading session at $2.60.
ABEV's POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ABEV has a B grade for Sentiment and Quality. The stock is ranked #13 among the 36 stocks in the A-rated Beverages industry.
Click here to access ABEV's additional Momentum, Stability, Value, and Growth grades.
trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG operates as a global hotel and lodging search engine. It provides a meta-search engine for locating lodging online from individual hotels, hotel chains, and online travel agencies. The company offers access to its platform through more than 53 regionally specific websites and applications in 31 languages.
On December 8, 2022, TRVG announced an official partnership with the 2023 Men's IGF World Handball Championship, encouraging sticking together by combining travel and sport. As the official Online Travel partner, TRVG branding will appear during matches in January 2023 and throughout the competition.
On October 18, TRVG and AXS, a digital ticketing platform for live sports and entertainment, announced a global partnership to allow eventgoers to access affordable stay booking options with event ticket purchases made via AXS. The collaboration also makes TRVG the exclusive accommodation partner of AXS, which should be strategically beneficial.
In terms of forward non-GAAP P/E, TRVG is trading at 6.87x, which is 60.1% lower than the industry average of 17.21x. Likewise, the stock's forward EV/Sales of 0.63x is 67.9% lower than the 1.96x industry average.
For the fiscal third quarter ended September 30, 2022, TRVG's total revenue increased 32.5% year-over-year to €183.70 million ($199.41 million), and its net other income grew 63.6% from the year-ago value to €404,000 ($438,550). Its adjusted EBITDA rose 116.1% year-over-year to €33.50 million ($36.36 million).
The consensus EPS estimate of $0.24 for the fiscal year ended December 2022 indicates a 327.7% year-over-year improvement. Likewise, the consensus revenue of $584.71 million for the same year indicates a rise of 41.7% from the prior year. Also, the company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in each of the four trailing quarters.
The stock has gained 27.7% over the past month to close the last trading session at $1.66.
TRVG's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
TRVG has an A grade for Quality and a B for Growth and Value. Among the 60 stocks in the Internet industry, it is ranked #2.
Beyond what is stated above, we have also rated TRVG for Momentum, Sentiment, and Stability. Get all TRVG ratings here.
Data Storage Corporation (DTST)
DTST provides multi-cloud information technology solutions across the United States and Canada. The company offers data protection and disaster recovery solutions; high availability, data vaulting, DRaaS, IaaS, message logic, support, maintenance, and internet solutions; and cybersecurity solutions.
The company provides its solutions and services to businesses in banking and finance, healthcare, manufacturing, distribution services, education, and government sectors.
On November 3, 2022, DTST announced a realignment of management and operations, which might help accelerate the growth of the company's core business solutions. It intends to centralize the service delivery, infrastructure, and sales engineering teams. The company anticipates that its infrastructure solutions and recurring revenue to one-time-sales ratio will improve, enhancing its gross profit and margins.
On October 24, DTST achieved ISO/IEC 27001 certification for its CloudFirst and Nexxis divisions.
Chuck Piluso, DTST's CEO, said, "Obtaining this certification marks an important milestone for these divisions, as well as provides us the potential to accelerate customer engagements as many organizations seek ISO/IEC certification prior to implementing certain solutions. We are committed to information security and are proud to provide solutions to our customers that they can trust and rely on."
In terms of forward EV/Sales, DTST is trading at 0.07x, which is 97.3% lower than the industry average of 2.72x, while its forward Price/Sales of 0.48x is 83.1% lower than the industry average of 2.83x.
DTST's sales rose 14.5% year-over-year to $4.42 million for the third quarter ended September 30, 2022. Its gross profit came in at $1.85 million, up 20.1% year-over-year. The company's adjusted EBITDA increased 54.7% from the prior-year quarter to $162,390.
Analysts expect DTST's revenue to increase 56.6% year-over-year to $23.30 million for the to-be-reported fiscal year ended December 2022. Also, the company's revenue is expected to grow 16% year-over-year to $5.60 million for the second quarter (ending June 2023). The stock has declined 3.6% over the past month to close the last trading session at $1.63.
It is no surprise that DTST has an overall B rating, which equates to a Buy in our POWR Ratings system.
The stock has an A grade for Sentiment and a B for Value and Quality. It is ranked #6 in the 66-stock Internet industry.
To see the additional POWR Ratings for Momentum, Growth, and Stability for DTST, click here.
ABEV shares were unchanged in premarket trading Monday. Year-to-date, ABEV has declined -4.41%, versus a 3.52% 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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