With the major U.S. stock indices threatening to establish new 2022 lows, most individual stocks are off to a rough start this year. Others are performing remarkably well.
Not surprisingly, energy and materials stocks are among the biggest year-to-date winners. Yet there are plenty of companies having strong years that aren’t commodity-related. Defensive retailers, food distributors, and even medical distributors are doing well. So too are many utilities.
Among the year’s top performers, some have climbed to heights not seen for a while. Investors in search of winning stocks with momentum on their side often compare a company’s stock price to its 52-week high. But there’s another important step.
Just because a stock is hot doesn’t mean it is a good buy. Check out these three names that are trading near 52-week highs—and still have attractive valuations.
Is Kellogg Company Undervalued?
Earlier this month, Kellogg Company (NYSE: K) set a new 52-week high of $70.21. It is not a post-pandemic high however; this was reached in July 2020 at $72.88. Nor is it an all-time high which was established four years prior when the world’s top cereal maker soared above $87.
Kellogg has more upside not just because some $20 separates it from its record peak, but because the stock remains inexpensive. At 16x trailing earnings, it is trading approximately 20% below its five-year historical average P/E. It is a valuation that is also well below that of the food products industry, which has an average P/E of 21x.
What adds to the stock’s value proposition is a $2.32 dividend that translates to a 3.4% forward yield. The dividend has been raised in each of the last 18 years and the yield far exceeds what the broader consumer staples sector currently offers at 1.9%.
When Kellogg reports first quarter results on May 5th, the market will be looking for more signs of steady growth. Its portfolio of popular cereal and snack brands racked up more than $14 billion in sales last year, more than 40% of which came from outside the United States.
Input cost inflation, labor shortages, and supply chain disruptions remain headwinds. But a fresh focus on cost controls and its faster growing businesses should produce fresh 52-week highs.
What is a Good Utility Stock?
Like most electric utilities, Edison International (NYSE: EIX) has enjoyed a nice run in 2022. The California-based company stands out from its peers, however, due to its focus on renewable energy sources.
Coal is no longer part of the plan at Edison International. It has eliminated the carbon-heavy rock from its lineup in favor of solar, wind, water, and nuclear power. Peers, meanwhile, have been slower to adopt green energy alternatives, allowing the company to establish a leadership position.
The absence of coal at Edison is not just good for the environment but good for profits. Coal prices have spiked to record levels this year due to heavy demand and tight supplies tied to Russian sanctions.
Edison is forecast to post EPS of $4.50 this year, which gives it a forward P/E around 16x. The stock has historically traded around 30x.
A clean balance sheet that matches the company’s energy philosophy is further reason to like Edison here. It supports a 4.0% dividend that has been hiked for 19 straight years.
With a huge Southern California base of mostly residential customers, Edison will continue to generate shareholder value—and could soon return to record levels above $80.
Is Wal-Mart Stock Still a Buy?
It’s hard not to see Walmart Inc. (NYSE: WMT) shares trending higher in this consumer environment. Although they are near an all-time high, they are arguably cheap given the growth trajectory ahead.
Wall Street is predicting that the superstore’s earnings growth will accelerate from 5% in the current fiscal year to nearly 8% in FY24. This means the stock can be had for 21x next year’s earnings, a fair price to pay for a business that should continue to benefit from post-pandemic stockpiling and consumers’ relentless quest for discounted groceries and household items.
Like other retailers, Wal-Mart is a much more diverse business these days. It has become a popular online shopping destination as customers continue to embrace delivery and curbside pickup options. Last year, e-commerce sales accounted for almost 20% of Walmart’s U.S. sales as the company grabbed market share in the all-important grocery category.
Then there’s Sam’s Club, which represents a small portion of overall revenue but may be an underappreciated growth catalyst. Excluding fuel, the warehouse operator is experiencing double-digit top-line growth—and has plans to expand both its physical and digital presence.
Even better news for shareholders—only about one-third of Wal-Mart’s earnings will be paid out as dividends in the quarters ahead. So there is plenty of room for dividend increases as the company gets ready to hike its cash handout for the 50th consecutive year.
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Before you consider Kellogg, you'll want to hear this.
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