Fed Chair’s signal to continue hiking interest rates has raised recession fears and led to a market sell-off. Amid the uncertain market and economic conditions, it could be wise to invest in Ryder System (R), GMS (GMS), and Friedman Industries (FRD), which possess solid growth prospects and have gained momentum but are trading at discounts to their peers . Read more….
The Fed’s signal to maintain its restrictive monetary policy To bring inflation down to its target level has led to a market sell-off lately, as investors expect continued interest rate hikes to push the economy into a recession.
However, given the fiscal policy support in various industries to encourage domestic production, growth-focused companies could benefit.
Growth stocks Ryder System, Inc. (R), GMS Inc. (GMS), and Friedman Industries, Incorporated (FRD) have gained momentum, which might continue for some time, irrespective of market conditions. Moreover, these stocks are trading at discounts to their peers. So, they appear to be ideal additions to your portfolio now.
Ryder System, Inc. (R)
R provides commercial fleet management, supply chain, and transportation management solutions worldwide to small businesses and large enterprises.
It offers full-service leasing, commercial rental, and maintenance of trucks, tractors, trailers, and integrated services. It also provides financing to its customers to purchase a selection of used trucks, tractors, and trailers through its used vehicle sales program.
On July 6, 2022, Kirkland’s, Inc. (KIRK), a specialty retailer of home décor and furnishings, partnered with R to make use of R’s industry-leading technology and capabilities and launch an in-home delivery service providing last-mile delivery and light assembly to customers and bolster its omnichannel capabilities. This should nurture R’s partnership with KIRK in the long run.
For its fiscal 2022 second quarter ended June 30, 2022, R’s total revenues increased 27.4% year-over-year to $3.03 billion. The company’s pre-tax income came in at $338.40 million, indicating a 66.2% year-over-year improvement.
Its net earnings came in at $239.40 million for the quarter, up 60.6% from the year-ago period. R’s EPS came in at $4.70, representing a 69.7% rise from the prior-year period. As of June 30, 2022, the company had $447.70 million in cash and cash equivalents.
Analysts expect the company’s EPS to hit $14.87 for its fiscal 2022 ending December 31, 2022, representing a 55.2% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $11.94 billion for the same fiscal year represents a 23.6% year-over-year improvement.
R’s EBIT grew 112.6% over the past year, 523.8% above the industry average of 18.1%. Its ROE growth of 136.1% over the past year is 1013.2% higher than the 12.2% industry average.
The stock’s 3.50x forward EV/EBITDA is 67.5% lower than the 10.77x industry average. In terms of forward Price/Sales, R is trading at 0.34x, 73.1% lower than the 1.28x industry average.
Over the past month, the stock has gained 2.9% to close the last trading session at $80.62. R is currently trading above its 50-day moving average of $76.08 and 200-day moving average of $77.08.
R’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Value, and Momentum. Click here to see the additional ratings for R’s Stability, Sentiment, and Quality.
R is ranked #7 of 87 stocks in the B-rated Industrial – Services industry.
GMS Inc. (GMS)
GMS distributes wallboard, ceilings, steel framing, and complementary construction products in the US and Canada. The company offers ceilings products, steel framing, insulation, lumber and other wood products, ready-mix joint compound, ancillary products, as well as commercial and residential building materials. It serves professional contractors and housebuilders.
GMS’ net sales for its fiscal 2022 fourth quarter ended April 30, 2022, increased 38.2% year-over-year to $1.29 billion. The company’s gross profit came in at $412.80 million, representing a 40.5% year-over-year improvement. Its operating income came in at $115.96 million for the quarter, up 98.9% from the year-ago period.
GMS’ adjusted net income came in at $91.31 million, indicating a 94.6% rise from the prior-year period. Its adjusted EPS increased 95.3% year-over-year to $2.09. The company had $101.92 million in cash and cash equivalents as of April 30, 2022.
The consensus EPS estimate of $7.53 for fiscal 2023 ending April 30, 2023, represents a marginal year-over-year improvement. It surpassed Street EPS estimates in each of the trailing four quarters.
Analysts expect the company’s revenue to be $4.99 billion for the same fiscal year, representing a 7.6% rise from the prior-year period. Its EPS is expected to grow at a rate of 26.9% per annum over the next five years.
GMS’ EBIT grew 120.5% over the past year, 567.3% above the industry average of 18.1%. Its ROE growth of 99.9% over the past year is 717.5% higher than the 12.2% industry average.
The stock’s 6.27x forward EV/EBITDA is 41.8% lower than the 10.77x industry average. In terms of forward Price/Sales, GMS is trading at 0.44x, 65.5% lower than the 1.28x industry average.
Over the past three months, the stock has gained 1.7% to close the last trading session at $50.81. GMS is currently trading above its 50-day moving average of $48.95.
GMS’ POWR Ratings reflects this promising outlook. It has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, Momentum, and Quality. Click here to see the additional ratings for GMS’ Stability and Sentiment.
GMS is ranked #5 of 46 stocks in the A-rated Industrial – Building Materials industry.
Friedman Industries, Incorporated (FRD)
FRD engages in steel processing, pipe manufacturing and processing, and the steel and pipe distribution businesses. The company operates in two segments: Coil and Tubular.
On May 2, 2022, FRD announced the acquisition of two high-quality, strategically located facilities from Plateplus, Inc., a hot-rolled steel coil, sheet, and plate supplier from five steel service centers. This would position FRD as a leading North American steel service center with highly efficient freight access, wide market reach, and processing capabilities.
For its fiscal 2022 fourth quarter ended March 31, 2022, FRD’s net sales increased 52.6% year-over-year to $75.09 million. The company had $2.60 billion in cash as of March 31, 2022.
FRD’s EBIT grew 81.1% over the past year, 332% above the industry average of 18.8%. Its ROE growth of 12.2% over the past year is 57.3% higher than the 7.8% industry average.
The stock’s 3.26x trailing-12-month EV/EBITDA is 52.7% lower than the 6.89x industry average. In terms of trailing-12-month Price/Sales, FRD is trading at 0.25x, 77.4% lower than the 1.13x industry average.
Over the past month, the stock has gained 16.9% to close the last trading session at $11.27. FRD is currently trading above its 50-day moving average of $9.15 and 200-day moving average of $9.43.
FRD’s POWR Ratings reflects its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Growth, Value, Momentum, and a B grade for Quality. In addition to the POWR Ratings grades we have just highlighted, one can see FRD’s Stability and Sentiment ratings here.
FRD is ranked #9 of 33 stocks in the A-rated Steel industry.
R shares were unchanged in premarket trading Tuesday. Year-to-date, R has declined 0.00%, versus a -14.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.