The stubbornly high inflation, strong jobs growth, restrictive monetary policy, and tightening of lending standards point to a recession later this year. The recession fears may drive the stock market turbulence and could continue to prevent investors from taking strategic investment decisions.
Amid this backdrop, investors could look to buy fundamentally strong, stable stocks United Microelectronics Corporation (UMC), United States Lime & Minerals, Inc. (USLM), and Utah Medical Products, Inc. (UTMD) to keep the volatility of their portfolios in check.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s keeping the stock market under pressure.
Despite easing for the tenth consecutive month in April, inflation remained above the Fed’s 2% target. The personal consumption expenditures index (PCE) rose 0.4% sequentially and 4.7% from a year ago, higher than the 4.2% rise in March, reinforcing the chances that interest rates could remain higher for longer. Markets fear that another rate hike could push the slowing economy toward a recession.
Moreover, the high borrowing rates and possible credit crunch resulting from the recent banking crisis will likely increase the chances of an economic downturn. Amid uncertainty surrounding the Fed’s next decision on interest rates and fears of an impending recession, market volatility could ensue.
In the face of an uncertain macroeconomic climate, investing in the featured stable stocks could help generate stable risk-adjusted returns.
Let’s take a closer look at their fundamentals.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC operates as a semiconductor wafer foundry internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. It has a 1.31 beta.
On March 7, 2023, Infineon Technologies AG (IFNNY) and UMC announced a long-term strategic cooperation agreement to multiply capacity for producing Infineon automotive microcontrollers to serve the rapidly expanding automotive market.
UMC’s Co-President, Jason Wang, stated, "Given our specialty technology leadership, diversified manufacturing footprint, and focus on quality and operational excellence, we look forward to deepening our collaborations with world-class automotive leaders such as Infineon."
In terms of the trailing-12-month EBIT margin, UMC’s 35.61% is 718% higher than the 4.35% industry average. Its 25.43% trailing-12-month Return on Common Equity is significantly higher than the 0.50% industry average. Likewise, its 36.77% trailing-12-month CAPEX/Sales is considerably higher than the industry average of 2.27%.
UMC’s operating revenues for the fiscal first quarter ended March 31, 2023, came in at NT$54.21 billion ($1.76 billion). The company’s gross profit came in at NT$19.22 billion ($625.48 million), while its operating income came in at NT$14.48 billion ($471.22 million).
In addition, its net income attributable to shareholders of the parent came in at NT$16.18 billion ($526.55 million), while its EPS came in at NT1.31.
UMC’s revenue for fiscal 2024 is expected to increase 14.6% year-over-year to $8.56 billion. The stock has gained 26.5% year-to-date to close the last trading session at $8.26.
UMC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Semiconductor & Wireless Chip industry, it is ranked #5 out of 91 stocks. The stock has an A grade for Momentum and a B for Value and Quality.
Click here to access all the ratings of UMC for Growth, Stability, and Sentiment.
United States Lime & Minerals, Inc. (USLM)
USLM manufactures and supplies lime and limestone products. It extracts limestone from open-pit quarries and an underground mine and processes it as pulverized limestone, quicklime, hydrated lime, and lime slurry. It has a 0.70 beta.
In terms of the trailing-12-month net income margin, USLM’s 21.37% is 197.8% higher than the 7.18% industry average. Its 13.77% trailing-12-month levered FCF margin is 289.5% higher than the 3.54% industry average. Likewise, its 13.89% trailing-12-month Return on Total Assets is 189.4% higher than the industry average of 4.80%.
USLM’s revenues for the first quarter ended March 31, 2023, increased 31.2% year-over-year to $66.78 million. Its gross profit increased 65.8% year-over-year to $23.99 million. The company’s net income increased 97.3% year-over-year to $17.10 million. Its EPS increased 96.1% year-over-year to $3.
Over the past nine months, the stock has gained 76.5% to close the last trading session at $181.42.
The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #8 out of 46 stocks in the A-rated Industrial - Building Materials industry. It has an A grade for Growth and Quality and a B for Momentum and Stability. We have also given USLM grades for Value and Sentiment. Get all USLM ratings here.
Utah Medical Products, Inc. (UTMD)
UTMD develops, manufactures, and distributes medical devices for the healthcare industry. The company offers fetal monitoring accessories, vacuum-assisted delivery systems, and other labor and delivery tools; DISPOSA-HOOD infant respiratory hoods; and DELTRAN PLUS blood pressure monitoring systems. It has a 0.20 beta.
In terms of the trailing-12-month gross profit margin, UTMD’s 61.94% is 11.1% higher than the 55.77% industry average. Its 52.80% trailing-12-month EBITDA margin is significantly higher than the 2.06% industry average. Likewise, its 0.42x trailing-12-month asset turnover ratio is 20.6% higher than the industry average of 0.35x.
For the fiscal first quarter ended March 31, 2023, UTMD’s net sales increased 1.6% year-over-year to $12.52 million. The company’s gross profit increased 4.1% year-over-year to $7.84 million. Its net income increased 19.2% year-over-year to $4.21 million, while its EPS came in at $1.159, representing a 20.2% increase over the prior-year period.
Over the past year, the stock has gained 8.5% to close the last trading session at $93.49.
UTMD’s POWR Ratings reflect promising prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked #7 out of 140 stocks in the A-rated Medical - Devices & Equipment industry. It has an A grade for Quality and a B for Stability and Sentiment.
In total, we rate UTMD on eight different levels. Beyond what we stated above, we have also given UTMD grades for Growth, Value, and Momentum. Click here to access all the ratings for UTMD.
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UMC shares were trading at $8.29 per share on Thursday morning, up $0.03 (+0.36%). Year-to-date, UMC has gained 26.95%, versus a 10.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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