After a strong rally driven by moderating inflation and Fed’s smaller rate hikes, the stock market has oscillated recently as investors re-evaluated their expectations for monetary policy following hot economic data and comments from Fed officials.
Last week, the policymakers lifted their benchmark federal funds rate by a quarter-percentage point to a range between 4.5% and 4.75%.
Stock futures traded lower as market participants assessed the fourth-quarter earnings reports of several companies. With the S&P 500 being down 1.3% this week and the Nasdaq suffering on pace for a weekly loss of 1.8%, all major averages are marching to end the week with losses.
Moreover, a strong jobs report last week caught some investors off guard. The labor market has demonstrated resilience despite rate increases, prompting concerns that the Fed might continue tightening monetary policy further than expected.
Fed governor Christopher Waller said, “Such employment gains mean labor income will also be robust and buoy consumer spending, which could maintain upward pressure on inflation in the months ahead.”
Given the muddled outlook, the stock market is expected to remain under pressure, at least in the coming months. Relatively cheap dividend-paying stocks could cushion one’s portfolio by helping investors ensure a steady income stream.
Therefore, investors could invest in fundamentally sound but lesser-known stocks, Global Partners LP (GLP) and Mistras Group, Inc. (MG), to garner long-term returns.
Global Partners LP (GLP)
GLP purchases, sells, gathers, blends, stores, and manages the logistics of transporting gasoline and gasoline blend stocks, distillates, residual oil, renewable fuels, crude oil, and propane to wholesalers, retailers, and commercial customers in the New England states, Mid-Atlantic region, and New York.
On January 25, 2023, GLP declared a distribution of $1.5725 on common units, consisting of a quarterly dividend of $0.63 per unit and a one-time special distribution of $0.9375 per common unit payable on February 14, 2023.
Its four-year average dividend yield is 11.06%, and its forward annual dividend of $2.54 translates to a 6.95% yield. GLP’s dividends have grown at 5.9% CAGR over the past three and five years.
On September 21, 2022, the company further expanded its retail footprint in the Mid-Atlantic region by acquiring Tidewater Convenience, Inc., with 15 locations in Southeast Virginia.
Mark Cosenza, SVP of Gasoline, Distribution, and Station Operations, said, “We are committed to continuing to expand by adding strategic locations to our vertically integrated network. Virginia is a key market that complements our existing portfolio.”
GLP’s sales increased 39.2% year-over-year to $4.63 billion for the third quarter ended September 30, 2022. Its gross profit grew 61.7% from the year-ago value to $328.38 million, while its operating income rose 163.2% year-over-year to $141.29 million.
The company’s adjusted EBITDA increased 112.8% year-over-year to $168.51 million. Also, its net income attributable to common limited partners and EPS increased 263.1% and 262.8% year-over-year to $105.95 million and $3.12.
In terms of forward EV/Sales, GLP is trading at 0.14x, 92.2% lower than the industry average of 1.79x. Likewise, its forward Price/Sales multiple of 0.07 is 95% lower than the industry average of 1.31. Also, the stock’s forward EV/EBIT ratio of 5.84x compares to the industry average of 7.70x.
Street expects GLP’s EPS and revenue for the quarter that ended December 31, 2022, to increase 218.2% and 10.2% year-over-year to $1.40 and $4.51 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 48.5% over the past nine months to close the last trading session at $36.
GLP’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Value and Momentum and a B for Growth and Sentiment. Within the A-rated MLPs - Oil & Gas industry, it is ranked first out of 31 stocks. Click here to see the other ratings of GLP for Stability and Quality.
Mistras Group, Inc. (MG)
MG provides integrated solutions to protect technology-enabled assets. The company operates through three segments: Services; International; and Products and Systems.
On September 15, 2022, MG’s Sensoria, an innovative 24/7/365 wind blade monitor, announced a collaboration with Danish blade specialist Bladena to provide an innovative solution to help maximize offshore wind blade integrity and uptime. The collaboration focuses on providing the ever-growing offshore wind market with solutions for the critical structural challenges wind turbine blades face in harsh environmental conditions.
For the fiscal third quarter that ended on September 30, 2022, MG’s revenue increased 2.2% year-over-year to $178.46 million. Its gross profit grew 3% from the year-ago value to $53.78 million. During the same period, non-GAAP net income attributable to MG came in at $5.01 million, up 40.5% year-over-year, while its non-GAAP EPS amounted to $0.16 per share, representing a 33.3% increase from the prior-year quarter.
In terms of forward EV/Sales, MG is trading at 0.58x, 67.9% lower than the industry average of 1.80x. Its forward Price/Sales multiple of 0.23 is 83.2% lower than the industry average of 1.40. In addition, the stock’s forward EV/EBITDA ratio of 7.44x compares to the industry average of 11.36x.
Analysts expect MG’s revenue and EPS for the fiscal year 2022 (ended December 31, 2022) to increase 1.8% and 28.2% year-over-year to $689.56 million and $0.17, respectively. The stock has gained 33.1% over the past month to close the last trading session at $5.47.
MG’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, and Sentiment. Within the B-rated Outsourcing - Business Services industry, it is ranked #7 of 41 stocks.
To see the additional POWR Ratings of MG for Momentum and Quality, click here.
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GLP shares were unchanged in premarket trading Friday. Year-to-date, GLP has gained 7.94%, versus a 5.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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