With inflation remaining far from the Fed’s goals, there's every reason to think that interest rates will continue to climb for a while before stabilizing. And since employment numbers are still so strong, the painful period is likely to stretch out past 2023 and into 2024. This sentiment is pulling money out of the markets and leading to low valuations.
But it's also creating a great hunting ground for value investors with a slightly longer investment horizon. Because as many of us already know, we need to buy when others are selling so we can sell when they're buying. Or we may want to hold into retirement, depending on our portfolio and investment goals.
Whatever the case, we want to select stocks that are likely to grow in the long term. But strong prospects for the near future don't hurt either.
Today, our value stock selections belong to industries with secular growth drivers. By going with stocks from top industries, we increase our chances because there are industry-wide factors that support these companies. (More on this below.)
Second, we look at each company's earnings estimate revisions trend, because stocks with earnings forecasts that were recently upgraded by analysts tend to outperform. When we combine attractive industries with buy-ranked stocks, we are bound to come up with names that have better potential.
And finally, we narrow the list down further to stocks that are expected to grow their earnings in 2023. Let's continue…
Tenaris S.A. (TS)
Tenaris produces and sells seamless and welded steel tubular products and related services mainly for the oil and gas industry, but also other industrial applications. The company operates in North America, South America, Europe, the Middle East and Africa, and the Asia Pacific.
Despite the geopolitical and macro-economic risk, these are interesting times for a producer of oil country tubular goods (“OCTG”). Concerns about slowing global economic growth have taken energy prices off their recent highs.
However, investment in infrastructure may be expected to continue given low levels of spare capacity and inventories, uncertainty about the impact of further sanctions on Russian exports and a renewed focus on energy security around the world. As a result, drilling activity increased last year and is expected to surpass pre-COVID levels in 2023. Pipeline activity is particularly strong in Argentina and the Middle East.
As a result, despite the high double-digit revenue growth and triple-digit earnings growth that it saw in 2022, Tenaris is expected to generate 21.1% revenue growth and 19.6% earnings growth this year. The estimate revision trend is positive with around 6.1% increase in the last 60 days.
Tenaris also pays a dividend that yields 2.05%.
Carrefour SA (CRRFY)
Carrefour operates hypermarkets, supermarkets, convenience stores, cash and carry stores and hypercash stores; e-commerce sites; and service stations in France, Spain, Italy, Belgium, Poland, Romania, Brazil, Argentina and Taiwan. Its stores offer fresh produce; local products; consumer goods; and non-food products like electronic and household appliances, textiles and childcare products.
The broad format of stores, heavy discounts and loyalty programs that the company offers has increased its appeal across its served markets and enabled it to take market share. As inflation rages on throughout the developed world, showing up in materials, production costs and distribution cost, consumers increasingly turned to its thrift-focused stores where many have been retained with the help of its successful loyalty programs. This scenario is likely to continue playing out in 2023.
Analysts currently expect 3.8% revenue growth and 22.9% earnings growth this year followed by 3.9% revenue growth and 14.7% earnings growth in 2024. This is no mean feat for a retail operation of the scale of Carrefour.
It also pays a dividend that currently yields 2.19%.
Suzano S.A. (SUZ)
Suzano is engaged primarily in the production and sale of eucalyptus pulp and paper products in Brazil and internationally. It operates through the Pulp and Paper segments. The company offers coated and uncoated printing and writing papers, paperboards, tissue papers, market and fluff pulps; and lignin and its byproducts.
The outlook for the paper and related products industry (top 8% of Zacks-classified industries) is solid mainly because of increasing end-user demand for eco-friendly packaging and the big push in the pulp industry to develop its recycling infrastructure. Paper has always been the most easily biodegradable commodity.
It is the obvious choice as we move away from plastic packaging, especially of the single-use variety. But the fact that it comes from trees has been a sticking point with environmentalists because the destruction of tree cover is leading to ecological disaster. Demand in the next few years is expected to come mainly from chemical and industrial markets, as well as new application areas in developing markets.
Suzano is benefiting from strong pricing of its hardwood pulp in North America and Europe, where demand is strong as well as in China where demand is stable. However, new projects in South America saw roadblocks because of European sanctions on Russian wood. Higher input costs (fuels, wood) remain headwinds. The company has a hedging policy that moderates foreign exchange risk.
While current estimates for 2023 represent a decline from the very strong growth that Suzano saw in 2022, it’s worth pointing out that the revisions trend is highly encouraging, which means that analysts are optimistic about its future. As of now, the 2023 estimate is up 17.4% in the last 30 days. Since Suzano is expected to report on Feb 8, we will know more at that time.
Because of the strength of recent cash flows, it has returned value to investors. Its dividend yields 13.34%.
Originally published on Zacks.com
