Zacks Analyst Blog Features Avnet, Cross Country Healthcare, Hudson Global and Tenaris
For immediate release
Chicago, IL – June 16, 2022 – Zacks.com announces the list of stocks featured in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events impacting stocks and financial markets. Stocks recently featured in the blog include: Avnet AVT, Cross Country Healthcare CCRN, Hudson Global HSON and Tenaris TS.
Here are highlights from Wednesday’s analyst blog:
What is safe stock?
Inflation continues to rattle markets with the latest CPI data from the Conference Board showing it hit a 41-year high. There are really two sides to the story, one related to food and energy, and the other to everything else.
Energy is unlikely to get much cheaper (oil rose 34.6% and gasoline 48.7% YOY in May) as it suits OPEC+ to hold prices oil at a high level. And the small increase scheduled for this week is designed to boost union revenue and is unlikely to move the needle for the rest of the world.
This means that most goods will continue to be marked up simply because the freight bill continues to rise. So even if everything else cools off, which in itself won’t be easy, we’ll still have a lot of inflation on our hands.
Food is the other segment experiencing significant inflation (prices rose more than 10% in May) for a myriad of reasons. The war in Ukraine has added to other factors of shortage not only of food grains, but also of vegetable oils. This set off a chain reaction, also causing meat and dairy prices to rise.
With the pandemic becoming less and less of a factor, personal services are seeing increased (partly pent-up) demand. And then, of course, there’s the summer travel season, which is shaping up to be pretty strong given all the pent-up demand. Thus, the cost of hotel stays, motor vehicle maintenance and insurance, airfare and outdoor entertainment are all on the rise.
A significant portion of the price escalation can be attributed to continued strength in home prices, boosted by very low inventories and strong demographic demand. Fed rate hikes have more impact on this market because rate hikes increase the cost of borrowing for the consumer, which increases the cost of owning a home, beyond escalating prices already observed on the market.
Which brings us to the question of the cost of borrowing. The reason rate hikes have such a far-reaching effect is their impact on the cost of borrowing for individuals and businesses. When companies are faced with a higher cost of operation, they inevitably pass the extra cost on to consumers. And consumers react by buying less or abstaining, depending on the essentiality of the product.
We would all like this to happen like clockwork, so that demand only decreases to the point where supply balances out, but not to the point that businesses run into trouble. But unfortunately, it doesn’t always work that way. So in this rising rate environment, companies with low corporate leverage or operating an asset-light model, where too much leverage isn’t necessary, are likely safer bets.
And if you want to play even safer, you can also check a current ratio of 2 or more. This indicates that current assets are doubly capable of covering current liabilities. These stocks can therefore be considered better equipped to deal with short-term contingencies should they arise, given the current environment.
Other security criteria are tied to Zacks proprietary methodology that favors certain stocks with #1 (Strong Buy) or #2 (Buy) ratings. When paired with an attractive industry ranking, i.e. the 50% of industries ranked by Zacks, these stocks have a high probability of stock price appreciation.
And finally, there is the issue of evaluation. Given what the markets are doing right now, it just wouldn’t be profitable to buy expensive things. In order to make sure that one is not mistaken here, it is better to look beyond the simple cost of a stock in dollars, but rather in terms of its price in relation to current earnings, earnings growth or sales potential.
I use price-to-earnings (P/E) and price-to-earnings growth (PEG) measures here. Avnet, Cross Country Healthcare, Hudson Global and Tenaris seem attractive choices based on these criteria.
Avnet, which is a distributor of electronic components, has a debt-to-cap ratio of 17.8% (less than 60% is generally considered safe). It therefore presents a very low risk in terms of indebtedness. Not only that – his current ratio is 2.02X.
The Zacks Rank #1 stock belongs to the Electronics Industry – Parts Distribution (the top 2% of industries ranked by Zacks). Its P/E of 6.38X compares favorably to its recent history and the S&P 500 while its PEG of 0.17 indicates investors are grossly downplaying its earnings growth potential.
Cross Country Health Care, which provides healthcare and other staffing services, has a debt-to-cap ratio of 38.0% and a current ratio of 2.44X. The #1 Zacks Rank stock belongs to staffing firms (top 31%).
Looking at valuation, Cross Country’s P/E of 4.62X is close to its lowest point of last year. Therefore, its 0.67 PEG also reflects a significant undervaluation of its earnings growth potential.
global hudson is another recruitment service provider targeting mid to large cap multinational companies and government agencies. Given its debt-to-cap ratio of 2.8%, the company has negligible leverage. Its current ratio of 2.79X is also extremely encouraging.
This Zacks Rank #1 stock belongs to the outsourcing industry (top 19%). On a P/E basis, it is trading near its low from last year. The PEG of 0.45 also means a considerable undervaluation.
Another stock worth buying is Tenaris. The steel company has a debt to cap ratio of less than 1% and a current ratio of 2.97.
Zacks Rank #1 stock belongs to the Steel – Pipes & Tubes industry (top 7%). It trades at a P/E of 8.18X (close to its lowest point of last year) and at a PEG of 0.30.
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