Sometimes even good news can be bad news. Like an unemployment situation that continues to improve. Or a manufacturing economy that continues to expand — with a backdrop where the Fed must raise rates as inflation continues to increase. And the better the economy appears, the less reason the Fed has to delay rate hikes.
A short while back, nobody was expecting higher rates until the end of the year, or maybe next year. Then suddenly, Omicron became a thing to fear and soon after that, thought to be not so bad. Job vacancies continued to be filled and reopening companies continued to hold up. Inflation became the most pressing problem that the Fed was required to solve.
And the fact that the economy appears to be doing better than expected and has continued to do so since the initial jolt is all the more reason for the Fed to act soon. Which means that the market is headed for a correction.
While this doesn’t look like the best time to be investing in stocks, there are always places to make money in the market. You can do it without taking too much risk, when you stick to low-beta stocks at cheap valuations that also pay a dividend. Here are a few examples-
Nikon Corporation manufactures and sells optical instruments primarily in Japan, North America, Europe, China and Thailand. Its three operating segments include Imaging Products (cameras and camera lenses), Precision Equipment (FPD and semiconductor lithography systems) and Healthcare (biological microscopes, cell culture observation systems and ultra-wide field retinal imaging devices).
While there is underlying strength in each of its served markets, stronger pricing in the imaging business and greater volumes in the FPD business are notable. However, the semiconductor lithography systems business is still impacted by order pushouts, likely related to uneven demand as an offshoot to ongoing supply chain issues.
Like most other electronics companies, Nikon continues to see supply chain issues in Asia. But its recent steps to rationalize cost structures have lowered the breakeven point, which along with demand recovery has allowed the company to raise full-year expectations and also increase its dividend.
Nikon shares carry a Zacks Rank #1 and belong to the Electronics – Manufacturing Machinery industry, which is in the top 16% of Zacks-classified industries, indicating upside potential. Their beta value of 0.58 indicates that the shares are relatively less responsive to market gyrations.
A Value Score of A or B generally means that the shares are trading below their intrinsic value. In this case, Nikon shares trade at 0.82X sales and 0.34X earnings growth. A price-to sales (P/S) ratio of less than 1 means that the company’s sales are undervalued and a price-to-earnings growth (PEG) ratio that is less than 1 indicates that its earnings growth potential is undervalued. Therefore, Nikon shares are very safe to hold.
Nikon also pays a dividend that yields 2.16%.
Computer Task Group CTG
Computer Task Group offers information and technology services to financial services, healthcare, manufacturing and energy companies and also to technology service providers in North America, South America, Western Europe and India. Its services span process transformation solutions, technology transformation solutions and operations transformation solutions.
Computer Task Group is undergoing a strategic transformation of its business focused on a disengagement from less-profitable staffing work and an increase in its high-margin Solutions business to a 50% share of total revenue by 2023. CTG is currently on track to reach this goal, having accounted for 45.6% of its revenue in the last-concluded quarter. Both these actions are improving its profitability. Additionally, the market opportunity and businesses’ need for digital solutions is large and growing, leading to huge potential for the company in the foreseeable future.
Computer Task Group shares carry a Zacks Rank #2 and belong to the Computers – IT Services industry (top 42%), both of which point to upside potential in the shares. The beta of 0.77 means the shares will be relatively stable even if the market is not.
Its Value Score of A is encouraging and borne out by the P/S of 0.36X and PEG of 0.64X.
Dividend yield 2.87%
While Computer Task Group doesn’t pay a dividend, analysts are optimistic about its prospects.
Toyota Motor TM
Toyota Motor Corp. designs, manufactures, assembles and sells passenger vehicles, minivans and commercial vehicles, as well as related parts and accessories. Additionally, the company operates GAZOO.com, a web portal for automobile information. It operates in Japan, North America, Europe, Asia, Central and South America, Oceania, Africa and the Middle East.
One of the world’s leading automakers with several well-known brands like Toyota, Lexus and Scion, Toyota Motor is set up for long-term success. In keeping with current trends, it plans to invest an additional 4 trillion yen ($35 billion) to double its line-up of battery electric vehicles (BEVs) from a planned 15 by 2025 to a planned 30 by 2030.
Electric vehicles (EVs) currently account for around 27% of its sales, a number that it expects to increase to 40% by 2025 and 70% by 2030. It has entered into a number of partnerships to further these goals, both for the development of the technology for its cars and trucks as well as for the construction of necessary infrastructure like hydrogen fuel stations.
Toyota Motor shares carry a Zacks Rank #1 and belong to the Automotive – Foreign industry (top 41% of Zacks-classified industries). It has a beta value of 0.50, so it’s one of the most stable stocks out there.
Given its Value Score of A, Toyota is clearly a very safe stock. And this is borne out by its P/S valuation of 0.96X and PEG valuation of 0.47X.
Toyota’s dividend yields 1.86%
Mitsui & Co. MITSY
The Mitsui Group is a global empire comprising more than 860 subsidiaries and associated companies with operations in a host of industries including chemicals, foodstuffs, general merchandise, iron and steel, machinery, nonferrous metals, textiles, energy, and real estate and service industries.
The extremely broad range of industries that the company operates in is the primary reason for its stability. On the one hand, this meant that the broad-based slowdown as a result of the pandemic affected it severely. But on the other hand, it meant that despite uneven recovery across various markets since then, The Mitsui Group is seeing considerable overall progress, prompting it to raise its full-year guidance.
The Mitsui Group shares carry a Zacks Rank #2 and belong to the Metal Products – Distribution industry (top 5%). Its beta value of 0.73 is also encouraging.
Mitsui Group shares carry a Value Score of A. They trade at a P/S multiple of 0.41X and a PEG multiple of 0.26X
Its dividend yields 2.80%
Dillard’s Inc. DDS
Dillard’s is a large departmental store chain featuring branded and private-label men’s, women’s and children’s fashion apparel, accessories and cosmetics, as well as home furnishings. As of Jul 31, 2021, Dillard’s had about 249 namesake outlets and 31 clearance centers across 29 states mainly in the Southwestern, Southeastern and Midwestern United States.
The company also sells its merchandize through the Internet at www.dillards.com. Dillard’s also owns a real estate investment trust (REIT). Although distributing at least 90% of its taxable income, it is not required to pay taxes at the corporate level, which helps with liquidity. Dillard’s also has a wholly owned captive insurance company, which enables it to manage its risks more efficiently.
Demand for its consumer products remains strong, helping to offset global supply-chain issues, including shipping delays, disruptions in the transportation network and raw material price increases. The stronger demand and better inventory management is leading to lower markdowns and improved profitability. Lower payroll expenses are also helping. However, competition remains stiff.
Dillard’s shares carry a Zacks Rank #1 and belong to the Zacks Retail – Regional Department Stores industry (top 1%). This is indicative of strong upside potential. On the other hand, its beta value of 0.88 means it will not fall as sharply as the rest of the market, in case of a correction.
The shares carry a Value Score of A supported by a P/S ratio of 0.76X and a PEG ratio of 0.50.
Its dividend yields 0.34%.
One-Month Price Performance
Image Source: Zacks Investment Research
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