- Following the busy Q1 earnings season, here’re three strong buy stocks that have delivered robust earnings.
- International Paper (IP): Quarterly results significantly beat consensus expectations despite cost pressures on raw materials and logistics.
- Pinterest (PINS): The social media platform increased average revenue per user by 28%, more than compensating for the decline in user numbers.
- Procter & Gamble (PG): The consumer products giant expects to convert almost all of its earnings into free cash flow during the current fiscal year.
Investors are in a risk-off mood so far this earnings season. Stocks that post revenue or earnings misses or reveal a less than cheerful 2022 forecast have seen significant declines in their prices.
Give the jittery market sentiment, investors find it increasingly difficult to identify strong buy stocks. Even companies that have delivered earnings beats are primed can easily see selling pressure.
According to FactSet, 80% of S&P 500 companies that have so far reported results have reported earnings per share surprise above estimates. Yet, the S&P 500 index fell around 10% in the past month nearing its worst monthly decline since March 2020 in the wake of the Covid-19 pandemic.
The downturn is happening as investors struggle to come to terms with a long list of fears. Analysts primarily blame the decline in equities on an increasingly hawkish Federal Reserve that could increase interest rates more quickly than previously anticipated. Meanwhile, the International Monetary Fund projected global growth would slow down from an estimated 6.1% in 2021 to 3.6% in both 2022 and 2023.
With that information, here are three strong buy stocks that could gain traction in May and beyond.
|IP||International Paper Company||$47.99|
|PG||The Proctor & Gamble Company||$156.57|
Strong Buy Stocks: International Paper (IP)
International Paper (NYSE:IP) is one of the leading packaging companies worldwide. It focuses on renewable fiber-based packaging and pulp products, and accounts for roughly one-third of the North American corrugated packaging market.
IP reported Q1 results on April 28. Revenue grew 14% year-over-year to $5.24 billion. Adjusted earnings per diluted share came in at 76 cents, compared to 50 cents in the prior-year quarter. Free cash flow came in at $403 million. Cash and equivalents ended the period at $1.12 billion.
The packaging giant predicts demand to remain strong through the second quarter. Adjusted operating profit soared 45% from a year ago to $288 million during the quarter.
The company has a joint venture with Ilim Group, the market leader in the Russian pulp and paper industry, contributing 32% of its total net income. Given Russia’s invasion of Ukraine, investors have been concerned. Management recently announced that it is evaluating strategic alternatives to sell its 50% interest in the joint venture.
IP stock is down 18% over the past year. Shares look cheap at 10.1x forward earnings and 0.9x trailing sales. The 12-month median price forecast for International Paper stock stands at $52.
Pinterest (NYSE:PINS) operates a popular product and idea discovery platform that helps users draw creative ideas on everything from travel destinations to furniture or recipes. Pinterest primarily generates revenue by selling digital ads and is currently focused on expanding its e-commerce features.
The social media platform announced Q1 results on Apr. 27. Revenue grew 18% from a year ago to $575 million. Adjusted net income came in at 10 cents per diluted share, down from 11 cents a year ago. Cash and equivalents ended the period at $1.69 billion.
Despite a 9% decline from last year, global monthly active users grew by 2 million to 433 million during the first quarter. Mobile app and Gen Z growth especially suggested a robust outlook.
Meanwhile, the company increased average revenue per user by 28%, more than compensating for the decline in users. The increase highlights how well Pinterest monetizes its users, suggesting that it has a solid advertising business.
In addition, the “rest of world” group that includes MAUs residing outside the U.S., Canada, and Europe generated 164% ARPU growth. Investors were pleased with the metrics that showed significant long-term growth potential for Pinterest in these countries.
PINS stock is down 37% year-to-date. Shares offer potentially good value at 20.2x forward earnings and 5.4x trailing sales. The 12-month median price forecast for Pinterest stock is $30.
Strong Buy Stocks: Procter & Gamble (PG)
Procter & Gamble (NYSE:PG) is one of the largest consumer product manufacturers worldwide, with an annual footprint of roughly $80 billion. The company boasts a broad portfolio of recognizable brands, including more than 20 that each generates over $1 billion in annual sales.
Procter & Gamble released Q3 FY22 results on Apr. 20. Revenue increased 7% from a year ago to $19.4 billion. Adjusted core earnings per share came in at $1.33, up from $1.26 a year ago. Cash and equivalents ended the period at $8.53 billion.
Organic sales growth hit a record 10% due to rising prices and higher sales volumes. While gross profit margin declined by 4%, P&G cut costs in other areas to keep the overall operating margin steady.
Wall Street is pleased that management anticipates converting almost all of its earnings into free cash flow in the fiscal year 2022. In addition, Procter & Gamble plans to spend $10 billion on stock buybacks and roughly $8 billion on dividends.
PG stock is up 16% over the past year. Shares are trading at 26.1x forward earnings and 5.2x trailing sales. Finally, the 12-month median price forecast for PG stock stands at $175.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.