Although March’s CPI data signaled a continuing deceleration in inflation, it is still above the Federal Reserve’s target of 2%. Despite the fears of a recession later this year, investors could consider buying and holding fundamentally strong stocks American Axle & Manufacturing Holdings, Inc. (AXL) and CompX International Inc. (CIX).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the stock market could remain under pressure.
The Fed raised the benchmark federal funds rate to a target range of 5% to 5.25% following an interest rate hike of a quarter percentage point yesterday. The Fed has hinted that the current tightening cycle might be ending. However, the Fed officials still view inflation as elevated and remain “highly attentive” to inflation risks.
Jay Bryson, an economist at Wells Fargo, said, “The committee could indeed hike rates by 25 on June 14, but that will depend crucially on incoming data over the next six weeks. In our view, the bar to a rate hike on June 14 is higher than it has been at past meetings since March 2022.”
Despite these recent developments, there’s no denying the fact that recession fears loom due to tighter credit standards and the high-interest rates. Last month, the Fed economists said that they expect a ‘mild’ recession later this year.
Despite all the uncertainty, AXL and CIX could be worth holding.
American Axle & Manufacturing Holdings, Inc. (AXL)
AXL designs, engineers, and manufactures driveline and metal-forming technologies that support electric, hybrid, and internal combustion vehicles. It operates through Driveline and Metal Forming segments.
In terms of the trailing-12-month EBITDA margin, AXL’s 12.51% is 10.7% higher than the 11.30% industry average. Its 5.59% trailing-12-month levered FCF margin is 99.4% higher than the 2.80% industry average. Likewise, its 11.35% trailing-12-month Return on Common Equity is 2.7% higher than the industry average of 11.05%.
AXL’s net sales for the fourth quarter ended December 31, 2022, increased 12.8% year-over-year to $1.39 billion. The company’s operating income increased 65.4% year-over-year to $53.60 million.
Its net income attributable to AXL came in at $13.90 million, compared to a net loss of $46.30 million in the prior-year quarter. Moreover, its EPS came in at $0.11, compared to a loss per share of $0.41 from the year-ago period.
AXL’s EPS for fiscal 2024 is expected to increase 99.2% year-over-year to $0.89. Its revenue for the quarter ended March 31, 2023, is expected to increase 2.8% year-over-year to $1.48 billion.
It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained marginally to close the last trading session at $6.96.
AXL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Auto Parts industry, it is ranked #23 out of 60 stocks. It has an A grade for Value and a B for Growth, Momentum, and Quality.
We have also given AXL grades for Stability and Sentiment. Get all AXL ratings here.
CompX International Inc. (CIX)
CIX manufactures and sells security products and recreational marine components primarily in North America. It operates in two segments, Security Products and Marine Components.
In terms of the trailing-12-month EBIT margin, CIX’s 15.80% is 65% higher than the 9.57% industry average. Its 12.44% trailing-12-month Return on Total Assets is 141.5% higher than the 5.15% industry average. Likewise, its 13.25% trailing-12-month net income margin is 104.3% higher than the industry average of 6.49%.
CIX’s gross margin for the first quarter ended March 31, 2023, increased 5% year-over-year to $12.70 million. The company’s operating income increased 11.1% year-over-year to $7 million. Its net income increased 18% year-over-year to $6.10 million. Additionally, its EPS came in at $0.49, representing a 22.5% increase from the prior-year period.
Over the past six months, the stock has gained 6.3% to close the last trading session at $18.69.
CIX’s POWR Ratings reflect its solid prospects. It has an overall rating of A, which equates to a Strong Buy.
It is ranked #2 out of 36 stocks in the A-rated Industrial - Manufacturing industry. In addition, it has a B grade for Growth, Value, Momentum, Stability, Sentiment, and Quality.
Click here to access all the ratings of CIX.
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AXL shares were trading at $6.62 per share on Thursday afternoon, down $0.34 (-4.89%). Year-to-date, AXL has declined -15.35%, versus a 6.26% 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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