Although inflation cooled off slightly, worries over an impending recession linger amid banking sector chaos. This has weighed heavily on investor sentiments, and the market is anticipated to remain volatile in the upcoming months.
Given this backdrop, let us explore some mid-cap stocks such as Jazz Pharmaceuticals plc (JAZZ), which might be a wise choice now, while Valvoline Inc. (VVV) and Axos Financial, Inc. (AX) could be avoided for the reasons mentioned in the article.
According to the Bureau of Labor Statistics, the U.S. Consumer Price Index (CPI) rose 0.1% in March, down from 0.4% in the previous month. On a year-over-year basis, CPI increased by 5%. However, core inflation increased by 0.4% in March and 5.6% year-over-year, matching economists’ expectations.
Since inflation remains well above the Fed’s target range of 2%, a rate hike in the upcoming meeting remains probable. Anthony Saglimbene, the chief market strategist at Ameriprise Financial in Troy, Michigan, said, "But from the market's perspective, it might be getting ahead of itself because I don't think the Fed will be cutting rates this year.”
In addition, CME Group's FedWatch Tool showed that the probability of a hike in May stood at 67.9%. Moreover, according to the Fed’s March FOMC meeting minutes, officials anticipate the U.S. economy to fall into a ‘mild recession’ by the year’s end.
According to UBS, it would remain tricky for investors to pick stocks for the rest of this year due to markets being hooked on unpredictable economic data. Furthermore, the Swiss bank's CIO, Mark Haefele, expects the choppiness stocks saw in the early months of 2023 to continue.
Mid-cap stocks tend to enjoy higher growth than large-cap companies and lesser volatility than small-cap stocks. Amid such uncertainties, quality mid-cap stock JAZZ could be an ideal buy now. However, stocks with bleak prospects, such as VVV and AX, could be best avoided.
Stock to Buy:
Jazz Pharmaceuticals plc (JAZZ)
Headquartered in Dublin, Ireland, JAZZ is a biopharmaceutical company with a market capitalization of $9.12 billion. It identifies, develops, and commercializes pharmaceutical products for various unmet medical needs internationally. The company has a portfolio of products and product candidates with a focus on the areas of neuroscience and oncology.
In terms of the trailing-12-month gross profit margin, JAZZ’s 92.70% is 66% higher than the 55.85% industry average. Likewise, its 45.24% trailing-12-month EBITDA margin is significantly higher than the industry average of 2.78%.
JAZZ’s forward non-GAAP P/E of 8.44x is 58.2% lower than the industry average of 20.17x. Its forward EV/EBIT of 8.26x is 51.4% lower than the 17x industry average.
JAZZ’s total revenues for the fiscal fourth quarter that ended December 31, 2022, increased 8.4% year-over-year to $972.12 million. Its total oncology revenues rose 8.1% year-over-year to $223.86 million. The company’s non-GAAP gross margin came in at 90.3%.
JAZZ’s net increase in cash and cash equivalents stood at $290.03 million for the year that ended December 31, 2022, compared to the net decrease in cash and cash equivalents of $466.32 million for the year that ended December 31, 2021.
JAZZ’s EPS and revenue for the fiscal second quarter ending June 2023 are expected to increase 6.2% and 2% year-over-year to $4.57 and $951.48 million, respectively.
Over the past six months, the stock has gained 9.8% to close the last trading session at $144.05. Moreover, it has also gained 7.5% over the past month.
JAZZ’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The company has an A grade for Value and a B for Growth. It is ranked #12 in the 378-stock Biotech industry.
Click here to see the additional POWR Ratings of JAZZ (Momentum, Stability, Sentiment, and Quality).
Stocks to Avoid:
Valvoline Inc. (VVV)
With a market capitalization of $5.99 billion, VVV provides automotive services through retail stores in the United States and Canada. It offers cabin air filters, battery replacement, and tire rotation services for various vehicles.
In terms of the trailing-12-month ROTC, VVV’s 4.89% is 29% lower than the 6.89% industry average. Likewise, its trailing-12-month cash from operation of $243.70 million is 36.8% lower than the industry average of $385.60 million.
VVV’s forward non-GAAP P/E and EV/EBIT 34.07x and 27.62x are 144% and 154.8% higher than the 13.96x and 10.84x industry averages, respectively.
VVV’s net revenues for the fiscal first quarter that ended December 31, 2022, stood at $332.80 million. Its operating income declined 43.7% year-over-year to $29.30 million. The company’s adjusted income from continuing operation and continuing operations adjusted earnings per share came in at $28.40 million and $0.16, respectively.
VVV’s cash, cash equivalents, and restricted cash stood at $93 million for the fiscal quarter that ended December 31, 2022, compared to $153.7 million for the fiscal quarter that ended December 31, 2021.
VVV’s EPS and revenue for the fiscal third quarter ending June 2023 are expected to plunge 44.4% and 61.6% year-over-year to $0.32 and $367.20 million, respectively. Also, it failed to surpass consensus EPS and revenue estimates in three of the four trailing quarters, which is disappointing.
The stock lost 1.5% intraday to close the last trading session at $34.85.
VVV’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, equating to Sell in our proprietary rating system.
The company has a D grade for Growth, Value, and Stability. It is ranked #84 in the 91-stock Energy – Oil & Gas industry.
Beyond what we have mentioned above, to see the additional POWR Ratings of VVV (Momentum, Sentiment, and Quality), click here.
Axos Financial, Inc. (AX)
With a market capitalization of $2.20 billion, AX provides consumer and business banking products in the United States and operates through two segments, Banking Business; and Securities Business. The company offers deposit products, including consumer and business checking, demand, savings, time deposit, money market, zero balance, and insured cash sweep accounts.
AX’s forward Price/Sales and Price/Book of 2.54x and 1.16x compare to the 2.14x and 0.98x industry averages, respectively.
AX’s non-interest expenses for the fiscal second quarter that ended December 31, 2022, stood at $107.53 million, up 25% year-over-year.
For the six months that ended December 31, 2022, AX’s return on average assets and return on average common stockholders’ equity were 1.55% and 16.35% compared to 1.65% and 16.51% for the six months that ended December 31, 2021, respectively.
AX’s EPS and revenue for the fiscal fourth quarter ending June 2023 are expected to come in at $1.23 and $226.09 million, respectively.
The stock has lost 9.7% over the past year and 2.1% intraday to close the last trading session at $36.68.
AX’s weak prospects are reflected in POWR Ratings. The stock has an overall rating of D, equating to Sell in our proprietary rating system. Within the 46-stock D-rated Consumer Financial Service industry, it is ranked #38.
To see the POWR Ratings of AX, click here.
What To Do Next?
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JAZZ shares were trading at $144.78 per share on Thursday morning, up $0.73 (+0.51%). Year-to-date, JAZZ has declined -9.12%, versus a 7.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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