Robust job data, strong consumer spending, and other favorable economic figures indicate that the economy is showing resilience. However, after robust economic data and stubbornly high inflation, the central bank will likely deliver its 11th straight rate increase in June.
Amid this backdrop, it could be wise to buy shares of Astellas Pharma Inc. (ALPMY), Alkermes plc (ALKS), and AstroNova, Inc. (ALOT) with fundamental strength and bright growth prospects trading at discounted valuations. Let us discuss this in detail.
Consumer spending remained strong last month as Personal Consumption Expenditures (PCE) rose 0.8%, compared to a 0.1% gain in March. Additionally, employers added 253,000 jobs in April, exceeding economists’ estimate of 180,000. Also, the unemployment rate fell to 3.4%, compared to 3.5% in March.
Moreover, according to the “second” estimate, GDP expanded at an annual rate of 1.3% in the first quarter of 2023, up from the initial 1.1% estimate reported last month. This improvement was predominantly fueled by increased private inventory investment, strong consumer spending, and robust government outlays.
While inflation has cooled significantly since its peak above 9% in June last year, falling to just 4.9% in April. However, it remains well above the Fed’s annual target of 2%. Still-high inflation and economic resilience, as depicted by recent economic data, are likely to pose a key risk to a potential Fed rate hike pause.
Wall Street traders are increasingly betting on the Fed raising interest rates for the 11th consecutive time in June.
Amid a rising interest rate environment, investors tend to shift from growth stocks to value stocks as they seek shelter in flourishing businesses with solid fundamentals and low share prices. Moreover, value stocks are considered low-volatility investments.
Against the backdrop, it seems wise to invest in quality stocks ALPMY, ALKS, and ALOT, which are trading at discounted valuations.
Let’s explore the fundamentals of the featured stocks.
Astellas Pharma Inc. (ALPMY)
Headquartered in Tokyo, Japan, ALPMY researches, develops, manufactures, and sells pharmaceutical products. Its primary business segment is Pharmaceutical Products. The company’s key offerings include XTANDI, BETANIS, MIRABETRIC, BETMIGA, and newer products like ZOSPATA, EVERENZO, and ENHOLTUMAB VEDOTIN.
On May 16, ALPMY and Sony Corporation announced a collaborative research agreement to develop an innovative oncology Antibody-Drug Conjugate platform using Sony's unique polymeric material, KIRAVIATM Backbone. The partnership is expected to enhance ALPMY’s capacity to utilize effective modalities and continuously create groundbreaking drugs for patients.
Additionally, on April 30, ALPMY and Iveric Bio, Inc. (ISEE) reached a definitive agreement under which ALPMY, through its subsidiary Berry Merger Sub, Inc., would acquire ISEE's outstanding shares for $40.00 per share in cash, totaling approximately $5.90 billion.
ISEE is a renowned expert in ophthalmology R&D and possesses valuable programs such as Avacincaptad Pegol (ACP) for Geographic Atrophy (GA) in Age-Related Macular Degeneration (AMD). With capabilities across the ophthalmology value chain, this acquisition should bring greater value to patients at high risk of vision loss.
In terms of forward P/E, ALPMY is trading at 19.42x, 26.9% lower than the industry average of 26.58x. The stock’s forward EV/Sales of 2.54x is 29.7% lower than the industry average of 3.61x. Also, its forward EV/EBITDA multiple of 10.28 compares with the 12.94x industry average.
For the fiscal year that ended March 31, 2023, ALPMY’s revenue increased 17.2% year-over-year to ¥1.52 trillion ($10.82 billion). Its gross profit rose 17.9% year-over-year to ¥1.23 trillion ($8.76 billion). The company’s cash inflows from operating activities grew 27.3% from the prior year to ¥327.77 billion ($2.34 billion).
As of March 31, 2023, the company’s total assets stood at ¥2.46 trillion ($17.50 billion), compared to ¥2.33 trillion ($16.62 billion) as of March 31, 2022.
The consensus revenue estimate of $10.83 billion for the fiscal year (ending March 2024) reflects a 136.3% year-over-year improvement. Likewise, the consensus EPS estimate of $0.85 for the current fiscal year indicates a 97.3% rise year-over-year. Moreover, the company surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 11.3% over the past month to close the last trading session at $16.55.
ALPMY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ALPMY has an A grade for Growth, Quality, and Stability and a B for Value. It is ranked #4 in the 169-stock Medical - Pharmaceuticals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see ALPMY’s ratings for Sentiment and Momentum here.
Alkermes plc (ALKS)
ALKS, based in Dublin, Ireland, develops and commercializes pharmaceutical products to address medical needs in neuroscience and oncology. Its portfolio covers alcohol dependence, opioid dependence, schizophrenia, and bipolar I disorder. It also has a pipeline of candidates for neurodegenerative disorders and cancer.
On May 25, ALKS submitted its definitive proxy statement to the SEC and issued a letter to its shareholders highlighting the company's successful execution and value generation since introducing its Value Enhancement Plan in December 2020.
ALKS has expanded its commercial portfolio by obtaining regulatory approvals for two new Alkermes-developed products, increased net sales of its proprietary products, and made progress in its pipeline development. Furthermore, the company has achieved robust performance and business growth.
In terms of forward non-GAAP PEG, ALKS is trading at 1.20x, 40.2% lower than the industry average of 2.01x. Its forward Price/Sales of 3.70x is 13.2% lower than the industry average of 4.26x. Also, the stock’s forward EV/Sales multiple of 3.54 compares with the industry average of 3.61x.
For the first quarter that ended March 31, 2023, ALKS’ net revenue from product sales increased 25.4% year-over-year to $214.73 million, and its total revenues grew 3.2% from the year-ago value to $287.60 million. As of March 31, 2023, the company’s cash and cash equivalents stood at $321.40 million, compared to $292.47 million as of December 31, 2022.
Analysts expect ALKS’ revenue to increase 18.5% year-over-year to $1.32 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to grow 23.2% from the prior year to $0.42. Also, the company surpassed its consensus revenue estimates in three of the trailing four quarters.
Shares of ALKS have gained 22.3% over the past six months to close the last trading session at $29.32.
ALKS’ robust outlook is apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
ALKS has a B grade for Sentiment, Growth, Value, and Momentum. It has topped the 373-stock Biotech industry.
Click here to access additional ALKS ratings for Quality and Stability.
AstroNova, Inc. (ALOT)
ALOT develops, manufactures, and distributes specialty printers, data acquisition, and analysis systems, including hardware and software, incorporating cutting-edge technologies to acquire, store, analyze, and present data in various formats. The company’s segments include Product Identification (PI) and Test & Measurement (T&M).
In October 2022, ALOT introduced the QL-E100, a user-friendly and compact full-color tabletop label printer. The QL-E100 provides a high-quality output at an affordable price, catering to both small businesses and larger enterprises needing multiple on-demand label printers at various locations within their facilities.
During announcing the company’s fourth-quarter fiscal 2023 results, Greg Woods, the President, and CEO, expressed satisfaction with the QL-E100’s success. He said, ”Production shipments are underway, and we are pleased with the initial customer response to our entry into this new tabletop market segment.”
In terms of trailing-12-month EV/Sales, ALOT is trading at 0.97x, 66.5% lower than the industry average of 2.89x. Its trailing-12-month EV/EBITDA of 13.73x is 5.9% lower than the industry average of 14.59x. Moreover, the stock’s trailing-12-month Price/Sales multiple of 0.77 compares with the 2.77x industry average.
For the fourth quarter that ended January 31, 2023, ALOT’s non-GAAP gross profit increased 39.1% year-over-year to $13.56 million. The company’s adjusted EBITDA grew 399.2% from the year-ago value to $3.86 million.
Furthermore, the company’s non-GAAP net income stood at $1.36 million, compared to a net loss of $759 thousand in the previous year’s quarter, while its non-GAAP EPS came in at $0.18, compared to a loss per share of $0.10 in the prior year’s period.
Over the past six months, the stock has gained 27.7% to close the last trading session at $15.02.
ALOT’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
ALOT has an A grade for Growth and a B for Value, Stability, and Sentiment. It has topped the 44-stock Technology - Hardware industry.
Click here to access additional ALOT ratings (Quality and Momentum).
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ALPMY shares were trading at $16.55 per share on Monday morning, down $0.23 (-1.39%). Year-to-date, ALPMY has gained 9.17%, versus a 10.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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