The S&P 500 has risen more than 20% this year—nearly double its long-term historical average annual gain. However, investors have traditionally made shifts in their holdings ahead of the third-quarter earnings season as the stock market enters what has historically been its weakest month of the year. Furthermore, according to payroll services firm ADP, U.S. companies added fewer jobs than projected in August. Private payrolls increased by just 374,000 in August, considerably less than the 600,000 the Dow Jones expectation.
This, along with the Fed’s statement on its coming plans and any change in the momentum of economic recovery, is expected to lead to increased market volatility in the coming weeks. However, we think growth stocks could be ideal for investors looking to dodge market fluctuations because they are well-positioned to outperform the overall market in the long run. Investors’ interest in growth stocks is evident in the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 14.7% returns over the past three months.
Given this backdrop, fundamentally strong growth stocks Gates Industrial Corporation plc (GTES) and Oceaneering International Inc. (OII) could be great additions to one’s portfolio now.
Gates Industrial Corporation plc (GTES)
GTES is a manufacturer and distributor of specialized power transmission and fluid power systems that is headquartered in Denver, Colo. The company’s products are utilized in construction, agricultural, energy, automotive, transportation, general industrial, and consumer industries, among other end sectors.
In June, GTES introduced two new thermoplastic polyurethane belts (TPU), the Gates Parabolic Pitch (GPP), in 8mm and 14mm profiles. According to the company, the new GPP belts will improve efficiency for the customers because they are stronger, more durable, quieter, and require less maintenance.
For its second fiscal quarter, ended July 3, 2021, GTES' net sales increased 58.7% from their year-ago value to $915.1 million. Its operating income grew significantly year-over-year to $149.1 million. Its net income came in at $96.9 million, versus a $22.4 million net loss in the prior-year quarter. The company’s EPS amounted to $0.33, compared to an $0.08 loss per share in the same quarter of 2020. Its total assets have increased at a 3.6% CAGR over the past three years, and its levered free cash flow increased at a 24.9% annualized rate over the past three years.
A $1.39 consensus EPS estimate for the current year represents a 98.6% increase year-over-year. The $3.51 billion consensus revenue estimate for the current year represents a 25.6% increase from the same period last year. The stock has declined 7.4% in price over the past month but has returned 38.7% over the past year and 26.8% over the past nine months.
It is no surprise that GTES has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Momentum, and a B for Growth, Quality, and Sentiment. In the B-rated Auto Parts industry, it is ranked #3 of 67 stocks.
Beyond the POWR Ratings grades I have just highlighted, you can view the GTES ratings for Stability and Value here.
Oceaneering International Inc. (OII)
OII is a global provider of engineering services and equipment to the offshore oil and gas, defense, aerospace, and commercial theme park industries. Subsea Robotics; Manufactured Product; Project Group; Integrity Management and Digital Solutions; and Aerospace and Defense Technologies are the five operational segments of the Houston, Tex., company.
OII’s revenue increased 16.6% year-over-year to $498.20 million for the second quarter ended June 30, 2021. The company reported $22.82 million in operating income, versus a $5.18 million operating loss in the prior-year quarter. Its net income came in at $6.24 million for this period, compared to a net loss of $24.79 million in the second quarter of 2020. Its EPS amounted to $0.06, versus a $0.25 loss per share in the prior-year period. Its levered free cash flow grew at a 41% CAGR over the past three years.
The company’s EPS is expected to grow 170.4% year-over-year to $0.19 in its fiscal year 2021. Analysts expect OII’s revenue to increase 3.3% year-over-year to $1.89 billion in the current year. Although the stock is down 1.3% in price over the past month, it has gained 146.4% over the past year and 61.2% so far this year.
OII’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. OII also has a B grade for Quality. The stock is ranked #1 of 41 stocks in the Energy – Services industry.
Beyond the POWR Ratings grades I have just highlighted, you can see the OII ratings for Growth, Value, Sentiment, Stability, and Momentum.
GTES shares were trading at $16.68 per share on Friday morning, up $0.08 (+0.48%). Year-to-date, GTES has gained 30.72%, versus a 21.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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