The three main stock indexes closed sharply higher on Thursday for the second straight day, recovering from a selloff earlier this week. The bullishness suggests that investor fears surrounding the uptick in weekly jobless claims and Chinese real estate giant Evergrande’s debt crisis have subsided. Furthermore, the market received a boost from the Fed on Wednesday when the central bank signaled no immediate removal of support to the economy.
While the Fed signaled interest rate hikes in 2022, the interest rate environment remains unchanged for now. So, the availability of cheap money and the continued economic recovery should bode well for growth stocks.
Therefore, we think it could be wise to bet on cheap stocks AstraZeneca Plc (AZN) and Gates Industrial Corporation plc (GTES), which possess strong growth attributes. These stocks are rated ‘Strong Buy’ in our proprietary POWR Ratings system.
AstraZeneca Plc (AZN)
AZN is a global pharmaceutical company that develops, produces, and markets prescription medications in oncology, cardiovascular, renal and metabolism, respiratory, infection, neuroscience, and gastroenterology. Recently, the London-based company has gained popularity for its COVID-19 vaccines sold under the brand names Covishield and Vaxzevria.
This month, The CASPIAN Phase III trials found that AZN's IMFINZI (durvalumab), combined with a choice of chemotherapies, demonstrated a sustained, clinically meaningful overall survival (OS) benefit at three years for adults with extensive-stage small-cell lung cancer treated in the first-line setting.
Also, this month, positive results from the head-to-head DESTINY-Breast03 Phase III trial showed that ENHERTU, the AZN, and Daiichi Sankyo Company, Limited HER2-directed antibody-drug conjugate, demonstrated superior progression-free survival in metastatic breast cancer.
During the second quarter, ended June 30, 2021, AZN’s total revenue increased 31% year-over-year to $8.22 billion. Its gross profit surged 14% year-over-year to $6.03 billion, while its cash and cash equivalents grew 174.4% from the prior-year quarter to $15.57 billion. The company’s net income was $550 million over this period. Its EPS amounted to $0.06, compared to a $0.25 loss per share in the prior-year period. Its revenue and EPS grew at a CAGRs of 9.7% and 10.8%, respectively, over the past three years.
A $3.52 consensus EPS estimate for the next year represents a 75.1% improvement year-over-year. Likewise, the 35.95 billion consensus revenue estimate for the current year represents a 35% increase from the same period last year. The stock has gained 19% in price year-to-date and 22% over the past nine months.
In terms of forward Price/Sales, AZN is currently trading at 5.21x, which is 36.1% lower than the 8.15x industry average. Also, in terms of its forward EV/Sales, the stock is currently trading at 5.61x, which is 19.5% lower than the 6.96x industry average.
AZN's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
AZN has also rated a B grade for Value, Growth, and Sentiment. Additionally, within the Medical-Pharmaceuticals industry, it is ranked #10 of 214 stocks.
Click here to see additional POWR Ratings for Momentum, Quality, and Stability for AZN.
Click here to checkout our Healthcare Sector Report for 2021
Gates Industrial Corporation plc (GTES)
GTES is a Denver, Colo.-based manufacturer and distributor of specialized power transmission and fluid power systems. 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 the second quarter, ended July 3, 2021, GTES' net sales increased 58.7% from its 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 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 $1.38 consensus EPS estimate for the current year represents a 97.1% 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 gained 51.2% in price over the past year and 25.6% over the past nine months.
In terms of forward Price/Book, GTES’s 1.57x is 50.3% lower than 3.51x the industry average. In addition, its 1.37x forward Price/Sales is 9.4% lower than the 1.51x industry average.
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 Value. In the B-rated Auto Parts industry, it is ranked #8 of 67 stocks.
Beyond the POWR Ratings grades I have just highlighted, you can view the GTES ratings for Stability and Sentiment.
AZN shares were trading at $60.34 per share on Friday morning, up $0.86 (+1.45%). Year-to-date, AZN has gained 23.95%, versus a 19.54% 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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