The bear market has been brutal. Given the inflationary trend and the weakening economy, it is not likely to end soon. For investors, the best strategy is to use unfavorable market conditions to scoop up stocks that have a long-term history of compounded earnings. So investors should consider buying Builders Firstsource (BLDR) and Pfizer (PFE).
Shutterstock.com – Stocknews
The near-term market outlook is cloudy, especially as the stock markets re-test the June lows. However, if we take an objective look, the economy and financial markets are in a very bad shape.
Inflation is expected to have turned a corner after the August CPI was extinguished. In fact, it showed an acceleration in the monthly core CPI, while the Fed is reportedly looking for a negative print or, sequentially, lower readings before halting or slowing down its hiking timetable. Think. At the same time, we have increasing evidence that the economy is slowing down and is about to roll over.
Needless to say, this is an exceptionally challenging environment for investors. Their first priority is to be capital conservation. Yet, we also know instinctively that the best stocks can only be bought at a discount during such adverse conditions. Therefore, investors should target stocks with a long-term history of earnings growth, such as Pfizer (PFE), and Builders FirstSource (BLDR).
PFE is one of the top pharmaceutical companies in the world. The sector has also outperformed in recent months as its revenues and earnings have largely been decoupled from economic growth or changes in monetary policy. In addition, these companies have enormous pricing power on drugs under patent and a strong balance sheet with low debt and $25 billion in cash.
PFE has also demonstrated its ability to continuously evolve and bring blockbuster drugs to market.
In 2021, the company generated $4.42 in EPS and $81.3 billion in revenue. This year, analysts are forecasting $7.16 billion in EPS and $108.2 billion in revenue. These equate to very impressive growth rates of 62% and 30%. Despite such strong growth, the stock remains fairly cheap with a forward P/E of 9.
PFE’s strong fundamentals are reflected in its PoWR rating. The stock has an overall A rating, which equates to a strong buy in our proprietary rating system. The A-rated stocks posted an average annual performance of 31.1% which is well suited to the S&P 500’s annualized performance of 8.0%.
In terms of component grade, PFE has a B for quality owing to its strong balance sheet, above average margins and well-regarded management team. Despite rapid growth and large margins, its P/E is also a B for value, being half that of the S&P 500. For the complete power rating of the PFE, click here.
Builders Firstsource (BLDR)
It is clear that the housing market has slowed in a major way due to higher mortgage rates and higher prices that have made affordability an issue, but the underlying supply and demand fundamentals remain supportive. Essentially, there is a demographic bulge as Millennials enter their 30s and 40s, while the supply of available housing is significantly lower relative to the historical average.
This bodes well for companies like BLDR, a manufacturer and supplier of construction materials. It primarily sells to homebuilders, contractors, remodelers and construction companies. Some of its major products are dimensional lumber and wood sheet goods, mills, windows, interior and exterior doors and other construction products. It also provides construction-related services such as professional installation, turn-key framing and shell fabrication across all its product ranges.
The interesting thing about BLDRs (and many stocks in the housing sector) is that they have experienced a sharp decline due to rising rates and fears of a possible slowdown in the economy. This is reflected in the valuation and cash flow of the BLDR.
This type of valuation means that investors have already overestimated the contraction in earnings.
The low valuation of the BLDR means it can deliver great returns for investors while continuing to generate solid earnings growth. One possible catalyst is for the Fed to grow at a slower rate than the market expected. Another is that inflationary pressures may ease, leading to higher margins and revenues.
BLDR’s POWR rating is in line with this combination of deep value and earnings growth. The stock has an overall rating of B, which is equivalent to a buy in our proprietary rating system. B-rated stocks posted an average annual performance of 21.1% which is well suited to the S&P 500’s average annualized 8% gain.
This component is also quite strong in terms of grade. The stock has an A for growth as revenue and EPS climbed 158% and 508% over the past 2 years. Next year, Wall Street analysts are forecasting a year of consolidation, with 1% revenue growth and a 9% decline in EPS.
However, if the housing market with its resilience can deter skeptics, there could be a big jump in BLDR, especially with valuations so low. Click here to view additional power ratings for BLDR.
9 “Must Have” Growth Stocks
What makes them “own”?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning mix of growth and price characteristics that generate a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our prestigious POWR rating system, where A rated shares have gained +31.10% in one year.
Click below to see these top-performing stocks with exciting growth prospects now:
9 “Must Have” Growth Stocks
Shares of PFE fell $0.19 (-0.43%) in premarket trading on Thursday. Year-on-year, the PFE has declined by -22.98%, while the benchmark S&P 500 index has gained -21.08% during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for almost a decade. Their goal is to help readers identify risks and opportunities in the markets. He is the chief growth strategist at StockNews.com and editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, with links to her latest articles.
The post of 2 winners who earned during bear market first appeared on StockNews.com