Value stocks in spotlight amid inflation fears; Here are 2 names to watch
The CPI report just released for August is lower than July but higher than expected – and markets fell in response. The main figure was the annualized inflation rate of 8.3% for the month, against the 8.1% expected. To keep inflation under control, the Federal Reserve is expected to raise interest rates by 75 basis points at its next meeting on September 21.
For investors, this means it may be time to change portfolio priorities. Higher inflation and higher interest rates generally send investors into a “flight for safety” mode, resulting in value stocks due to their inherently safer position.
In this context, we opened the TipRanks database to find two value tickers that have achieved Strong Buy ratings from Wall Street. In fact, Deutsch Bank analysts see their upside potential starting at 50% and growing from there. Let’s take a closer look.
Blue Owl Capital (OWL)
We’ll start with a financial company, Blue Owl Capital. This company is a private market capital solutions provider, working through three direct lending subsidiaries: Owl Rock, Oak Tree and Dyal Capital. At the end of 1H22, Blue Owl had over $199 billion in total assets under management and continues to focus on delivering attractive risk-adjusted returns for investors.
Blue Owl shares went public in May last year, following a SPAC merger between Owl Rock and Dyal Capital with Altimar Acquisition Corporation. Since its IPO, Blue Owl’s revenue and earnings have both grown steadily. The company’s 2Q22 revenue was $327 million, up 82% year-on-year. As for earnings, the company reported distributable earnings of 13 cents per adjusted share. This compared favorably to the 9 cents reported in the prior year quarter – and it fully covered the company’s current dividend payment.
The dividend was last declared in August, at 11 cents per common share for an August 29 payment. The annualized dividend of 44 cents gives a yield of 4%, well above the market average.
Blue Owl has caught the eye of Deutsche Bank analyst Brian Bedell, who believes the stock offers a winning combination of growth and value.
“We view OWL as possessing a strong mix of favorable attributes within the alternative asset management industry, these being: 1) a business profile geared towards strong secular growth trends in need of capital solutions for the private equity industry, 2) an earnings mix that maximizes the contribution of fee-related earnings, 3) a strong contribution from retail distribution, & 4) a very strong growth profile of FRE primarily via strong fundraising prospects over the next two years at least,” Bedell wrote.
The analyst summed up: “We consider the stock to offer attractive value in addition to having the strongest FRE CAGR for 2021-24E of 29-30%…”
Adding to his bullish comments, Bedell gives OWL shares a Buy rating and a price target of $19, implying a solid 72% year-on-year upside. (To see Bedell’s background, Click here)
Overall, the Strong Buy rating on this stock is based on the consensus opinion of Wall Street analysts, whose most recent 5 ratings include 4 Buy and 1 Hold. The shares are priced at $11.04 and their average target of $16 suggests they have about a 45% gain in store for the year ahead. (See OWL stock forecast on TipRanks)
ABM Industries (ABM)
The next value stock we look at is ABM Industries. The company is a contracted facilities manager offering a range of services to its clients, including cleaning and janitorial services, parking management and maintenance, facilities engineering, as well as mechanical and maintenance services. HVAC. These are the deep logistical issues that give businesses worldwide headaches in every niche, from schools to offices, hospitals to factories, and ABM solves them. The company has customers in aviation, business, education, healthcare, industry and manufacturing.
ABM has consistently shown strong financial results for several years now and has taken advantage of the corona crisis to introduce its “Enhanced Clean” service to customers. In the company’s 2022 fiscal year, its revenue grew by about $1.5 billion per quarter to $1.9 billion. The most recent quarter, Q2 of fiscal 2022, posted $1.96 billion in revenue, a 27% year-over-year gain. Adjusted EPS rose 4% year-over-year to 94 cents.
Thus, ABM runs a profitable business and passes the profits on to investors. The company’s dividend is currently 19.5 cents per common share, or 78 cents annualized. At this rate, the dividend yields 1.85%, but the real appeal here is reliability; ABM has paid the common stock dividend for 225 consecutive quarters.
ABM also has a clear growth-by-acquisition strategy, and on September 1, it closed its agreement to acquire RavenVolt, a designer and installer of microgrid power solutions. The acquisition enhances ABM’s engineered solutions services and positions the company to provide solutions for electric vehicle infrastructure, power generation and bundled power.
Covering ABM for Deutsche Bank, analyst Faiza Alwy describes the stock as his “best value idea”.
“We remain rated long on ABM, believing the stock should be repriced higher from current levels (of
Alwy’s bullish comments fully support his Buy rating on the stock, and his $65 price target implies a 12-month upside of around 55% for ABM. (To see Alwy’s prize list, Click here)
Overall, there are 4 recent analyst reviews on this stock, and they include 3 Buy to 1 Hold to support the Strong Buy consensus rating. The average price target here is $58.50, indicating 41% upside potential from the current trading price of $41.96. (See ABM stock forecast on TipRanks)
To find great stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.
Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.