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The fourth quarter earnings season is turning out to be better than expected as companies continue to beat both revenue and earnings projections. While the positive surprises are of smaller magnitude, a larger number of companies are posting them, which could be an indication of a broader return to normalcy.
Additionally, the latest report from the Bureau of Economic Analysis (BEA) shows fourth-quarter real GDP growth of 6.9%. So there is little to complain about the overall growth rate.
The ISM manufacturing report for January shows a PMI of 57.6%, a sign of a manufacturing sector in continued expansion. However, new orders continue to outpace supply, leading to continued increase in the backlog and thin customer inventories. This appears to be at least partly related to labor shortages, since raw material inventories are growing despite increased production.
The BEA report shows rising wage rates and resultant increase in personal income even as personal expenditures decline, supporting the thesis that the labor market remains tight.
These are all indications of a strong economy and set the stage for a rate hike.
Be that as it may, there is reason to believe that some companies will still do very well this year based upon their recent performance and prospects for the rest of the year. When analysts echo the positive sentiments coming out of management and broader market signals support the view, we should sit up and take notice.
The stocks discussed below have all of the above positive ingredients plus a cheap or at least decent valuation (indicating that rate hike tensions are priced in), as well as a Zacks Rank #1 (Strong Buy). Let’s take a closer look-
Advanced Micro Devices is a semiconductor company offering x86 microprocessors as accelerated processing units (APUs), chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, and development services; as well as server and embedded processors, semi-custom System-on-Chip (SoC) products, development services, and technology for game consoles.
For AMD, the growth opportunity is two-fold. The first is related to the ongoing strength in the semiconductor market because of pent-up demand in a number of markets, but most notably in automotive and industrial. The second is that by virtue of being a much smaller player in the space, AMD stands to gain by taking share from Intel. Both these growth factors remain in operation as of now, positioning the company.
Additionally, the Xilinx acquisition could close soon, as the main obstacle (China regulators) have recently given the nod, even if on the basis of some reasonable and standard conditions. That means further growth potential for AMD in a host of markets including data center, defense/aerospace, automotive, industrial, communications, consumer and others. The opportunity in the first four verticals is particularly significant.
Last quarter’s results were super for AMD: an earnings beat of over 22% on top of revenues that beat by around 7%.
Analysts expect 43% earnings growth on top of 31% revenue growth this year, followed by 19% earnings growth on top of 12% revenue growth in 2023.
Estimates are moving up: by 68 cents (17%) for 2022 and 83 cents (21%) in the last seven days alone.
AMD shares carry a Zacks Rank #1 (Strong Buy).
You can’t expect a stock like this to be cheap. But the fact that it is trading at a multiple of around 30 times forward earnings, the lowest in the past year is reason enough to jump in.
Clearfield, Inc. manufactures, markets, and sells standard and custom passive connectivity products to the fiber-to-the-premises, enterprises, and original equipment manufacturers markets in the United States and internationally. It provides its fiber to anywhere platform for various incumbent local exchange carriers, competitive local exchange carriers, wireless operators, and multiple systems operators and cable TV companies, as well as the utility/municipality, enterprise, and data center markets.
FTTH penetration in the U.S. remains relatively low. But because of its potential to improve broadband connectivity, telecom operators are expected to build out their fiber infrastructure over the next four-five years as they try to win broadband customers in the face of stiff competition from cable companies. Biden’s infrastructure bill is expected to breathe new life into these initiatives.
The Fiber Broadband Association (FBA) estimates that FTTH deployments in the U.S. increased 12% in 2021 to reach 60.5 million homes, a penetration of just over 40%. Its Fiber Provider Study notes that “the private sector is increasing its understanding of the importance of fiber and government efforts to close the digital divide have never been greater." If anything, the pandemic has accelerated this trend, as the need to deliver equal digital experiences to people irrespective of where they live, work, or play has never been higher.
So the potential for a company like Clearfield is significant. And it is apparent in its results as well as in the revisions trend.
Clearfield’s December quarter earnings beat the Zacks Consensus Estimate by 53% on revenue that beat by around 22%.
The lone analyst providing estimates sees earnings increasing around 52% this year (ending in September) on revenue growth of 32%. Clearfield has topped estimates by significant margins in each of the last four quarters at an average rate of 50.7%, so the analyst appears conservative by those standards.
In the last 30 days, the 2022 earnings estimate has jumped 38 cents (20%). The 2023 estimate is pending.
Clearfield shares carry a Zacks #1 Rank.
It trades well below its median valuation over the past year. The fact that the current 26X multiple is more than the S&P 500’s 20X is understandable, given its potential for growth.
Marathon Petroleum primarily engages in the refining, transporting and marketing of petroleum products in the U.S. Following the acquisition of its competitor Andeavor in 2018, it became the largest refiner in the country and the fifth largest refiner in the world in terms of capacity.
It operates in two segments: Refining & Marketing and Midstream. The Refining segment refines crude oil and other feedstocks and purchases refined products and ethanol for resale. The Midstream segment transports, stores, distributes and markets crude oil and refined products through refining logistics assets, pipelines, terminals, towboats and barges. It is also involved in natural gas and NLG operations including gathering, transporting, fractionating, storing and marketing.
For midstream players that essentially mark up their output as “fees,” commodity price inflation is less of an issue. So the pandemic-inflicted lows and recent highs in crude prices haven’t materially impacted its profitability.
On the other hand, continued economic growth, the continued opening up of the economy, OPEC+ increasing crude production and relative immunity to COVID helped by the nationwide vaccination are positive for demand. Since travel has far from normalized, a lot of this strength is yet to unfold. The offloading of its retail business (Speedway gas stations) for a supply agreement brought immediate cash as well as visibility into future cash flows.
Marathon Petroleum reported strong results in the last quarter, with revenues beating the Zacks Consensus Estimate by over 40% and earnings beating by over 176%.
Analysts have raised their estimates for the year: the 2022 earnings estimate has jumped 65 cents (13%) and the 2023 estimate has jumped 68 cents (12%) in the last seven days.
Marathon Petroleum carry a Zacks Rank #1.
What’s more, the valuation looks reasonable at around 14X earnings.
RPC provides a range of oilfield services and equipment for the oil and natural gas companies involved in the exploration, production, and development of oil and gas properties, including the Rocky Mountain regions, Appalachian area, Gulf of Mexico and others in the U.S. It also has operations in Africa, Argentina, Canada, China, Eastern Europe, Latin America, Mexico, the Middle East and other places.
The recent increase in crude prices is driving more upstream players to invest in drilling, which is increasing demand for equipment and services, and leading to stronger pricing. Better utilization of its assets is also improving profitability.
In the last quarter, the company beat the Zacks Consensus Estimate by 100% on revenue that beat by 11%.
Going forward, analysts expect the trend to continue. So estimates have moved higher by around 35% for 2022 and 7% for 2023.
RPC shares carry a Zacks Rank #1.
The shares look relatively inexpensive at around 19X forward earnings and 1.3X forward sales.
STMicroelectronics is a global independent semiconductor company which designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in telecommunications, computing, consumer, automotive and industrial markets.
The semiconductor shortage remains an important factor for all the leading players in the industry, most of which are in the process of increasing capacity to cater to the revolution going on in our rapidly digitizing world. In that respect, STMicroelectronics’ position is no different.
The company currently sees no moderation in demand, nor inventory builds at its customers, whether at automotive players like Tesla or consumer players like Apple, or the largely fragmented industrial players. So its capacity builds this year are expected to be nearly double last year’s levels.
In the last quarter, STMicroelectronics beat earnings estimate by 17% and revenue estimates by around 2%.
Analysts have raised their estimates by around 4% for both 2022 and 2023. Revenue and earnings are now expected to grow a respective 15% and 44% this year followed by 6% revenue growth and 9% earnings growth next year.
STMicroelectronics shares carry a Zacks Rank #1
The shares appear reasonably valued at around 14X earnings, its lowest valuation over the past year and below the S&P 500.
Price Perfornance Over Past Month
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5 Stocks to Buy After Strong Earnings Results
The fourth quarter earnings season is turning out to be better than expected as companies continue to beat both revenue and earnings projections. While the positive surprises are of smaller magnitude, a larger number of companies are posting them, which could be an indication of a broader return to normalcy.
Additionally, the latest report from the Bureau of Economic Analysis (BEA) shows fourth-quarter real GDP growth of 6.9%. So there is little to complain about the overall growth rate.
The ISM manufacturing report for January shows a PMI of 57.6%, a sign of a manufacturing sector in continued expansion. However, new orders continue to outpace supply, leading to continued increase in the backlog and thin customer inventories. This appears to be at least partly related to labor shortages, since raw material inventories are growing despite increased production.
The BEA report shows rising wage rates and resultant increase in personal income even as personal expenditures decline, supporting the thesis that the labor market remains tight.
These are all indications of a strong economy and set the stage for a rate hike.
Be that as it may, there is reason to believe that some companies will still do very well this year based upon their recent performance and prospects for the rest of the year. When analysts echo the positive sentiments coming out of management and broader market signals support the view, we should sit up and take notice.
The stocks discussed below have all of the above positive ingredients plus a cheap or at least decent valuation (indicating that rate hike tensions are priced in), as well as a Zacks Rank #1 (Strong Buy). Let’s take a closer look-
Advanced Micro Devices (AMD - Free Report)
Advanced Micro Devices is a semiconductor company offering x86 microprocessors as accelerated processing units (APUs), chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, and development services; as well as server and embedded processors, semi-custom System-on-Chip (SoC) products, development services, and technology for game consoles.
For AMD, the growth opportunity is two-fold. The first is related to the ongoing strength in the semiconductor market because of pent-up demand in a number of markets, but most notably in automotive and industrial. The second is that by virtue of being a much smaller player in the space, AMD stands to gain by taking share from Intel. Both these growth factors remain in operation as of now, positioning the company.
Additionally, the Xilinx acquisition could close soon, as the main obstacle (China regulators) have recently given the nod, even if on the basis of some reasonable and standard conditions. That means further growth potential for AMD in a host of markets including data center, defense/aerospace, automotive, industrial, communications, consumer and others. The opportunity in the first four verticals is particularly significant.
Last quarter’s results were super for AMD: an earnings beat of over 22% on top of revenues that beat by around 7%.
Analysts expect 43% earnings growth on top of 31% revenue growth this year, followed by 19% earnings growth on top of 12% revenue growth in 2023.
Estimates are moving up: by 68 cents (17%) for 2022 and 83 cents (21%) in the last seven days alone.
AMD shares carry a Zacks Rank #1 (Strong Buy).
You can’t expect a stock like this to be cheap. But the fact that it is trading at a multiple of around 30 times forward earnings, the lowest in the past year is reason enough to jump in.
Clearfield, Inc. (CLFD - Free Report)
Clearfield, Inc. manufactures, markets, and sells standard and custom passive connectivity products to the fiber-to-the-premises, enterprises, and original equipment manufacturers markets in the United States and internationally. It provides its fiber to anywhere platform for various incumbent local exchange carriers, competitive local exchange carriers, wireless operators, and multiple systems operators and cable TV companies, as well as the utility/municipality, enterprise, and data center markets.
FTTH penetration in the U.S. remains relatively low. But because of its potential to improve broadband connectivity, telecom operators are expected to build out their fiber infrastructure over the next four-five years as they try to win broadband customers in the face of stiff competition from cable companies. Biden’s infrastructure bill is expected to breathe new life into these initiatives.
The Fiber Broadband Association (FBA) estimates that FTTH deployments in the U.S. increased 12% in 2021 to reach 60.5 million homes, a penetration of just over 40%. Its Fiber Provider Study notes that “the private sector is increasing its understanding of the importance of fiber and government efforts to close the digital divide have never been greater." If anything, the pandemic has accelerated this trend, as the need to deliver equal digital experiences to people irrespective of where they live, work, or play has never been higher.
So the potential for a company like Clearfield is significant. And it is apparent in its results as well as in the revisions trend.
Clearfield’s December quarter earnings beat the Zacks Consensus Estimate by 53% on revenue that beat by around 22%.
The lone analyst providing estimates sees earnings increasing around 52% this year (ending in September) on revenue growth of 32%. Clearfield has topped estimates by significant margins in each of the last four quarters at an average rate of 50.7%, so the analyst appears conservative by those standards.
In the last 30 days, the 2022 earnings estimate has jumped 38 cents (20%). The 2023 estimate is pending.
Clearfield shares carry a Zacks #1 Rank.
It trades well below its median valuation over the past year. The fact that the current 26X multiple is more than the S&P 500’s 20X is understandable, given its potential for growth.
Marathon Petroleum (MPC - Free Report)
Marathon Petroleum primarily engages in the refining, transporting and marketing of petroleum products in the U.S. Following the acquisition of its competitor Andeavor in 2018, it became the largest refiner in the country and the fifth largest refiner in the world in terms of capacity.
It operates in two segments: Refining & Marketing and Midstream. The Refining segment refines crude oil and other feedstocks and purchases refined products and ethanol for resale. The Midstream segment transports, stores, distributes and markets crude oil and refined products through refining logistics assets, pipelines, terminals, towboats and barges. It is also involved in natural gas and NLG operations including gathering, transporting, fractionating, storing and marketing.
For midstream players that essentially mark up their output as “fees,” commodity price inflation is less of an issue. So the pandemic-inflicted lows and recent highs in crude prices haven’t materially impacted its profitability.
On the other hand, continued economic growth, the continued opening up of the economy, OPEC+ increasing crude production and relative immunity to COVID helped by the nationwide vaccination are positive for demand. Since travel has far from normalized, a lot of this strength is yet to unfold. The offloading of its retail business (Speedway gas stations) for a supply agreement brought immediate cash as well as visibility into future cash flows.
Marathon Petroleum reported strong results in the last quarter, with revenues beating the Zacks Consensus Estimate by over 40% and earnings beating by over 176%.
Analysts have raised their estimates for the year: the 2022 earnings estimate has jumped 65 cents (13%) and the 2023 estimate has jumped 68 cents (12%) in the last seven days.
Marathon Petroleum carry a Zacks Rank #1.
What’s more, the valuation looks reasonable at around 14X earnings.
RPC, Inc. (RES - Free Report)
RPC provides a range of oilfield services and equipment for the oil and natural gas companies involved in the exploration, production, and development of oil and gas properties, including the Rocky Mountain regions, Appalachian area, Gulf of Mexico and others in the U.S. It also has operations in Africa, Argentina, Canada, China, Eastern Europe, Latin America, Mexico, the Middle East and other places.
The recent increase in crude prices is driving more upstream players to invest in drilling, which is increasing demand for equipment and services, and leading to stronger pricing. Better utilization of its assets is also improving profitability.
In the last quarter, the company beat the Zacks Consensus Estimate by 100% on revenue that beat by 11%.
Going forward, analysts expect the trend to continue. So estimates have moved higher by around 35% for 2022 and 7% for 2023.
RPC shares carry a Zacks Rank #1.
The shares look relatively inexpensive at around 19X forward earnings and 1.3X forward sales.
STMicroelectronics (STM - Free Report)
STMicroelectronics is a global independent semiconductor company which designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in telecommunications, computing, consumer, automotive and industrial markets.
The semiconductor shortage remains an important factor for all the leading players in the industry, most of which are in the process of increasing capacity to cater to the revolution going on in our rapidly digitizing world. In that respect, STMicroelectronics’ position is no different.
The company currently sees no moderation in demand, nor inventory builds at its customers, whether at automotive players like Tesla or consumer players like Apple, or the largely fragmented industrial players. So its capacity builds this year are expected to be nearly double last year’s levels.
In the last quarter, STMicroelectronics beat earnings estimate by 17% and revenue estimates by around 2%.
Analysts have raised their estimates by around 4% for both 2022 and 2023. Revenue and earnings are now expected to grow a respective 15% and 44% this year followed by 6% revenue growth and 9% earnings growth next year.
STMicroelectronics shares carry a Zacks Rank #1
The shares appear reasonably valued at around 14X earnings, its lowest valuation over the past year and below the S&P 500.
Price Perfornance Over Past Month