The pace of economic recovery is still uncertain due to the supply chain disruptions and consequent inflationary pressure. Moreover, continuing COVID-19 Delta variant infections are expected to continue hindering economic recovery. U.S. consumer prices rose 5.4% year-over-year in September and 0.4% sequentially. In addition, the 10-year Treasury yield climbed above 1.6% before the market opened this week, and economist Mohammed El-Erian expects market volatility to increase if the Fed withdraws stimulus measures.
Despite the lingering concerns related to the economic recovery, the S&P 500 ended the last week 1.8% higher, registering its best week since July. A solid start to the third-quarter earnings season made investors bullish. In addition, retail sales increased 0.7% from August versus analysts’ expectation of a decline.
Against this backdrop, we think betting on fundamentally strong stocks América Móvil, S.A.B. de C.V. (AMX), ArcelorMittal (MT), and Ternium S.A. (TX) could be rewarding. These stocks are rated ‘Strong Buy’ in our proprietary rating system.
América Móvil, S.A.B. de C.V. (AMX)
AMX provides integrated telecommunications services in Latin America and globally. The Mexico City, Mexico, company’s offerings include wireless and fixed-voice services as well as data services.
On September 29, AMX and Liberty Latin America Ltd. (LILAK) agreed to combine their Chilean operations in a 50/50 joint venture, which is expected to generate operating benefits for AMX and enhance value creation through cost savings and greater efficiency.
Also in September, AMX announced plans to sell its subsidiary, Claro Panama, S.A. to Cable & Wireless Panama, S.A., an affiliate of LILAK. The price agreed upon for sale stands at $200 million, which is expected to improve AMX’s cash flow.
In its second fiscal quarter of 2021, AMX’s total revenue increased 0.4% year-over-year to MEX$252.51 billion ($12.41 billion), while its net income increased 119.6% from the same period last year to MEX$42.82 billion ($2.10 billion). The company’s earnings per ADR rose 156% year-over-year to $0.64.
A $1.50 consensus EPS estimate for the current year (fiscal 2021) indicates a 145.9% year-over-year increase. Likewise, the $48.19 billion consensus revenue estimate for the current year reflects a 1.7% year-over-year increase.
AMX has gained 42.2% in price over the past year and 24.6% year-to-date to close Friday’s trading session at $18.12.
AMX’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.
AMX has a Stability grade of A, and a Growth, Value, and Quality grade of B. In the 48-stock, A-rated Telecom – Foreign industry, it is ranked #1. Click here to see the additional POWR Ratings for AMX (Momentum and Sentiment).
ArcelorMittal (MT)
MT owns and operates steel manufacturing and mining facilities in Europe, North and South America, Asia, and Africa. It sells its products to customers in the automotive, appliance, construction, and machinery industries. It is headquartered in Luxembourg City, Luxembourg.
On September 28, the company announced that it had signed a letter of intent with the governments of Belgium and Flanders for a €1.1 billion ($1.28 billion) project to reduce CO2 emissions in ironmaking. The project demonstrates the company’s commitment to long-term sustainability goals.
Also in September, MT signed a Mineral Development Agreement (MDA) amendment with the Government of Liberia, which is expected to increase the company’s mining and logistics operations in the region and aid the construction of a new concentration plant, encompassing processing and transportation facilities.
MT’s sales increased 76.2% year-over-year to $19.34 billion in its second fiscal quarter, ended June 30. Its net income attributable to equity holders of the parent and earnings per common share came in at $4.01 billion and $3.47, respectively, both up substantially from their negative year-ago values. Its EBITDA rose 614.6% from the prior-year quarter to $5.05 billion.
The Street’s $4.38 EPS estimate for the current quarter (ending December 2021) reflects a 2,205.3% year-over-year improvement. Likewise, the Street’s $22.33 billion revenue estimate for the current quarter indicates a 57.4% increase from the same period last year. Furthermore, MT has an impressive earnings surprise history; it has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 125.2% in price over the past year to close Friday’s trading session at $32.13. It has gained 40.3% year-to-date.
It’s no surprise that MT has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock also has an A grade for Growth, Value, Momentum, and Sentiment. MT is ranked #5 out of the 32 stocks in the A-rated Steel industry.
To see the additional POWR Ratings for Stability and Quality for MT, click here.
Note that MT is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Ternium S.A. (TX)
TX, with its subsidiaries, is a manufacturer of steel products. It operates through two segments--Steel and Mining. The company also provides financial, social, and engineering services and operates as a distribution firm. It is based in Luxembourg City, Luxembourg.
In August, TX signed a memorandum of understanding (MoU) with mining company Vale S.A. (VALE) to develop steelmaking solutions to reduce CO2 emissions. The companies intend to develop an iron-ore briquetting plant and other plants to produce low carbon footprint metallic products. The partnership is aligned with TX’s decarbonization strategy and commitment to reducing its CO2 emission intensity by 20% by 2030.
For its fiscal second quarter, ended June 30, TX’s net sales climbed 124.5% year-over-year to $3.92 billion. Its EBITDA improved 534.3% from the prior-year quarter to $1.42 billion. The company’s operating income and earnings per ADS stood at $1.27 billion and $5.21, respectively, registering a rise of 1,838.1% and 2,268.2% year-over-year.
Analysts expect its EPS to increase 119% year-over-year to $4.62 in the current quarter (ending December 2021), while the $4.23 billion consensus revenue estimate for the current quarter indicates a 64.1% improvement versus the same period last year. In addition, TX has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 114.6% in price over the past year and 53.5% year-to-date to close Friday’s trading session at $44.65.
TX’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary POWR Rating system. TX has a Momentum and Quality grade of A, and a Growth, Value, and Sentiment grade of B. It is ranked #2 in the Steel industry.
In addition to the POWR Rating grades we’ve stated above, one can see the TX rating for Stability here.
AMX shares were trading at $18.04 per share on Monday afternoon, down $0.08 (-0.44%). Year-to-date, AMX has gained 25.65%, versus a 20.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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