The oversold value stocks of well-positioned companies provide an opportunity here. More investors will realize that U.S. consumer spending will continue to be strong amid the hot labor market.
Since inflation has peaked and the Fed is not eager to trigger a recession, the market is likely to continue to climb in the coming weeks and months.
Nonetheless, many institutional and retail investors remain cautious going forward, avoiding high-valuation stocks that are not growing rapidly.
Many of these names are trading at levels that suggest that a deep recession or some other catastrophe is right around the corner. As it becomes apparent that such an event is very unlikely to occur anytime soon, oversold value stocks should outperform in the coming months.
General Electric (GE)
Historically, GE’s largest, most profitable unit has been its Aviation business. With travel trends surging and airlines reporting great financial results, GE stock is very well-positioned to soar much higher.
Indeed, the Aviation unit’s revenue jumped 12% year over year, its profits soared 42% year over year to $908 million, and its orders jumped 31% to a hefty $7.2 billion.
And as I pointed out in a previous column offshore wind power is poised to boom, benefiting GE’s Renewables unit. GE also should benefit from increased demand for electricity amid the electrification of transportation. That trend is already materializing, as the conglomerate’s much-beleaguered Power unit generated a small profit and a year-over-year Orders increase of 14%.
Despite all of these positive catalysts, GE stock has sunk 31% year-over-year. Meanwhile, it’s changing hands for a leveraged free cash flow-enterprise value ratio of just 2.16 times.
General Motors (GM)
The fact that over 233,000 consumers were interested in buying GM’s Cadillac Lyriq back in March, while pre-orders of the luxury electric vehicle sold out in just four hours on May 19, bode very well for the outlook of GM’s EV business.
Citi recently named GM stock one of its “quality growth stocks.” Yet GM stock has sunk nearly 37% so far in 2022 and it’s trading at a forward price-earnings ratio of just five, which is why it’s one of the more attractive oversold value stocks.
Also worth noting is that the company’s self-driving unit, the Cruise, continues to progress. Specifically, the unit looks poised to become the first to offer completely autonomous rides. That is, there will be no backup driver needed.
After a successful debut in California, Cruise could quickly move to many other markets. Also on the horizon, the automaker is starting to deploy Cruise’s technology into its BrightDrop delivery vans. Both robo-taxis and autonomous deliveries could be very lucrative for GM and could arrive much sooner than many expect.
The department-store chain is clearly benefiting from the strength of middle-class and wealthy consumers. Also helping the company is the strong demand for apparel, returns to offices, and occasions.
“Macy’s sales were…affected by an accelerated category shift, away from the popular pandemic categories, such as casual and activewear as well as Soft Home, and into more occasion-based apparel, like dresses, women’s shoes, men’s clothing and furnishings,” said Macy’s CEO Jeff Gennette on the company’s May 26 Q1 earnings conference call.
Those positive trends, along with the strength of the company’s luxury Bloomingdale’s unit, helped its revenue jump 13.6% year over year and come in slightly ahead of analysts’ average outlook.
Additionally, Macy’s reported Q1 EPS of $1.08 (excluding certain items). This topped analyst expectations of 83 cents, and the midpoint of its full-year top-line guidance was above the average estimate.
M stock is down nearly 13% year to date, and it’s trading at a forward price-earnings ratio of just 4.4. Moreover, the shares have a significant dividend yield of 3.3%.
Nordstrom is benefiting from the same trends as Macy’s.
Moreover, Nordstrom is being helped by the fact that it is exposed primarily to upper-end consumers. These individuals’ spending trends are much less affected by inflation.
Nordstrom recently reported very good fiscal Q4 results. Its fiscal Q4 revenue jumped 19% year-over-year to $3.47 billion, versus analysts’ average outlook of $3.59 billion. The retailer’s loss per share came in at 6 cents, 2 cents worse than analysts’ average estimate.
Nordstrom generated $32 million of EBIT, excluding some items. It expects its full-year EPS to be between $3.20 and $3.50, versus its previous outlook of $3.15-$3.50. The company also announced that it had approved $500 million of share buybacks.
JWN stock has a forward P/E ratio of just seven and a substantial dividend yield of 3.7%. Since June 2021, the shares have fallen more than 24%.
The company recently stated it expects total revenue of $886 million for fiscal 2025, excluding potential sales from its ramping auto app store, IVY.
The company is trading at an enterprise value of $3.3 billion, meaning that its forward EV/revenue ratio, excluding IVY, is just 3.;7.
That’s a very low valuation for a tech company that has excellent IT security products, promising partnerships with Amazon and many other major firms, and expects to grow meaningfully going forward. If we add in $150 million of sales from IVY, that ratio goes down to just three.
BlackBerry is looking to generate positive non-GAAP EPS and cash flow beginning in FY25. In other words, it expects that there is a good chance that it will be profitable within a couple of years.
In recent weeks, BlackBerry announced that it would partner with Magna (NYSE:MGA), a giant Canadian auto equipment company, NXP (NYSE:NXPI), one of the largest makers of chips for autos and Alphabet/Google.
BB stock has tumbled more than 34% so far this year.
Roku added robust 1.2 million users last quarter, while its average revenue per user soared 33.5% year-over-year, making it one of the more attractive oversold value stocks.
ROKU stock has been hammered due to Snap’s (NYSE:SNAP) recent guidance reduction, but Snapchat has much tougher competition than Roku, including Meta (NASDAQ:FB) and Twitter (NYSE:TWTR).
Roku is the leading streaming OS provider in the U.S. ROKU stock has tumbled 59% this year, and its P/E ratio of 49.5 is low, given its huge growth.
Citi recently named GOOG stock as a name likely to outperform during a rate-hike cycle and amid the risk of recession. Additionally, Bank of America identified GOOG and Meta Platforms as the two best names to buy in a declining economy.
With its monopoly in internet search ads, Alphabet is vital for advertisers, so it’s highly unlikely to encounter similar problems as Snap has. And yet GOOG stock has sunk nearly 17% in the last month.
Alphabet’s Waymo autonomous-driving unit continues to make progress. Like GM’s Cruise, Waymo is advancing in California, as it’s testing its autonomous vehicles in San Francisco.
On the date of publication, Larry Ramer owned shares of GE stock and BB stock.