Investors have faced challenges over the past year as the economy has been plagued by geopolitical tensions, high inflation, and the Fed’s aggressive interest rate hikes. The Fed has increased the benchmark interest rate eight times since last year, with the most recent being a quarter of a percentage point hike last week.
The aggressive rate hikes have helped bring inflation down as December’s Consumer Price Index (CPI) data signaled an easing of inflation for the sixth consecutive month, as CPI rose 6.5% year-over-year and declined 0.1% sequentially.
Moreover, despite the uncertainty, the Commerce Department reported that the fourth quarter Gross Domestic Product (GDP) rose at a 2.9% annualized pace, more than expected by economists.
At the Economic Club of Washington event yesterday, Federal Reserve Chairman Jerome Powell said, “The disinflationary process, the process of getting inflation down, has begun, and it’s begun in the goods sector, which is about a quarter of our economy.” However, he added, “But it has a long way to go. These are the very early stages.”
With the January jobs report showing that the U.S. economy added 517,000 jobs, much higher than expected, the Fed Chair warned that if the inflation rises or the job market strengthens, the central bank might have to raise the benchmark rates higher than previously projected.
However, many analysts believe inflation has peaked, and the economy might narrowly avoid a recession. Goldman Sachs cut its recession odds recently due to a strong labor market. The firm now sees a 25% probability of a recession in the next 12 months, down from a previous 35% forecast.
Furthermore, investors’ interest in growth stocks is evident from the Vanguard Growth ETF’s (VUG) 15.1% returns over the past three months.
Therefore, it could be wise for investors to buy fundamentally strong growth stocks General Motors Company (GM), Cars.com Inc. (CARS), and Apogee Enterprises, Inc. (APOG).
General Motors Company (GM)
GM designs, builds, and sells trucks, crossovers, cars, and automobile parts and accessories worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.
GM’s EBITDA grew at a CAGR of 11.8% over the past three years. Its EBIT grew at a CAGR of 23% over the past three years. Moreover, its revenue grew at a CAGR of 4.5% over the past three years.
On January 20, 2023, GM announced its plans to invest $918 million in four U.S. manufacturing sites, including $854 million to prepare these facilities to produce the company’s sixth generation Small Block V-8 engine and an additional $64 million in Rochester, New York and Defiance, Ohio for castings and components to support EV production.
These investments should enable the company to strengthen its full-size truck and SUV business and continue supporting its growing EV product portfolio.
For the fiscal fourth quarter that ended December 31, 2022, GM’s revenue increased 28.4% year-over-year to $43.11 billion. Its net income attributable to stockholders increased 14.8% year-over-year to $2 billion. In addition, its adjusted EPS came in at $2.12, representing a 57% increase from the year-ago quarter.
GM’s revenue for the quarter ending March 31, 2023, is expected to increase 9.1% year-over-year to $39.24 billion. Its EPS for the quarter ending June 30, 2023, is expected to increase 40.4% year-over-year to $1.60.
The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 15.3% to close the last trading session at $41.40.
GM’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Auto & Vehicle Manufacturers industry, it is ranked #19 out of 61 stocks. It has a B grade for Growth, Value, and Sentiment.
Click here to see the additional POWR Ratings of GM for Momentum, Stability, and Quality.
Cars.com Inc. (CARS)
CARS operates as a digital marketplace and provides solutions for the automotive industry. Its platform connects car shoppers with sellers. The company showcases dealer inventory, elevates and amplifies dealers' and automotive manufacturers' brands, connects sellers with the ready-to-buy audience, and empowers shoppers with the resources and information needed to make car-buying decisions.
CARS’ revenue grew at a CAGR of 1.3% over the past three years. Moreover, its levered FCF has grown at a 1.2% CAGR over the past three years.
For the fiscal third quarter that ended September 30, 2022, CARS’ total revenue increased 5.1% year-over-year to $164.60 million. The company’s operating income increased 64.8% year-over-year to $19.90 million. Its adjusted EBITDA increased 8.9% year-over-year to $49.88 million.
Analysts expect CARS’ EPS and revenue for the quarter that ended December 31, 2022, to increase 2.2% and 5.5% year-over-year to $0.49 and $166.99 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock has gained 74.3% to close the last trading session at $17.32.
CARS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. Within the B-rated Auto Dealers & Rentals industry, it is ranked #4 out of 21 stocks. It has an A grade for Growth and a B for Sentiment.
We have also given CARS grades for Value, Momentum, Stability, and Quality. Get all CARS ratings here.
Apogee Enterprises, Inc. (APOG)
APOG designs and develops glass and metal products and services in the United States, Canada, and Brazil. The company operates in four segments: Architectural Framing Systems; Architectural Glass; Architectural Services; and Large-Scale Optical Technologies (LSO).
APOG’s EBITDA grew at a CAGR of 21.3% over the past three years. Its EBIT grew at a CAGR of 34.3% over the past three years. Its EPS grew at a CAGR of 27.6% over the same period.
For the fiscal third quarter that ended November 26, 2022, APOG’s net sales rose 10% from the prior-year quarter to $367.85 million. Its adjusted net earnings increased 49.7% year-over-year to $23.77 million.
The company’s adjusted EBITDA increased 32.9% from the prior-year quarter to $44.69 million. In addition, its adjusted EPS came in at $1.07, representing a 69.8% increase from the year-ago quarter.
Analysts expect APOG’s EPS for the fiscal year 2023 to increase 60.5% year-over-year to $3.98. Its revenue for the quarter ending February 28, 2023, is expected to increase 5.8% year-over-year to $346.92 million. Over the past six months, the stock has gained 15.6% to close the last trading session at $47.93.
APOG’s POWR Ratings reflect this promising outlook. APOG has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked first out of 46 stocks in the A-rated Industrial - Building Materials industry. It has an A grade for Growth and a B for Value, Momentum, and Quality.
In addition to the POWR Ratings stated above, one can see APOG's ratings for Stability and Sentiment here.
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GM shares were trading at $41.71 per share on Wednesday afternoon, up $0.31 (+0.75%). Year-to-date, GM has gained 23.99%, versus a 7.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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