The stock market has been incredibly volatile lately. Stocks took a deep dive, then rebounded sharply, only to start falling again in recent weeks. For this reason, it is not clear whether the next market move will be up or down.
Although the current uncertainty can make investing difficult, it is important to keep a long-term view in mind. Stock prices of high-quality companies that can consistently grow earnings tend to rise over the long term, especially if you can buy stocks at attractive valuations. Three high-quality companies currently trading at cheap values are Dynamic Douglas (NYSE: PLOW), Franco-Nevada (NYSE: FNV)and Kinder Morgan (NYSE: KMI). This makes them look like compelling value stocks to consider in these uncertain times.
Record sales and just a modest rebound in stocks
Reuben Gregg Brewer (Dynamic Douglas): Wall Street can be fickle and myopic in turbulent times, which seems to be the case today with Douglas Dynamics. The stock, despite bouncing off its yearly lows, is still down around 20% from its 2022 highs. The industrial stock’s yield is a generous 3.6%, still well on the way to above the five-year average return of just under 3%. Douglas Dynamics still seems to be sitting in the bargain bin despite the title’s recent recovery.
The commercial work truck accessory company reported record sales in the second quarter, with the figure increasing 19% year-over-year. While the company’s gross profit margin has been affected by inflation, it is working on this problem by raising the prices it charges for its plows and other services. Meanwhile, management reports that persistent supply chain bottlenecks are beginning to ease.
That’s the most important thing: CEO Bob McCormick explained that “…demand signals remain strong in both segments today, with a strong pre-season sales run for accessories and a strong and continuous backlog for solutions.” In other words, the underlying business of Douglas Dynamics remains strong even in the face of some short-term headwinds.
Although the company faces some uncertainty today, it appears that the long-term risk to the company is minimal. Investors who think in decades, not days, might want to take a deep dive here as Wall Street still has a half-empty view of things.
This stock is a goldmine
Neha Chamaria (Franco-Nevada): The Franco-Nevada stock just hit its lowest level in 52 weeks. Gold prices are, of course, falling – they are at multi-week lows as of this writing – and are being dragged lower by the Reserve’s aggressive interest rate hikes. government to control inflation. As a company that derives more than half of its revenue from gold, falling gold prices do not bode well for Franco-Nevada. In fact, the company is also interested in silver, iron ore, oil and gas. Unfortunately, all of these commodities and fuels have come under selling pressure.
However, I do not see why the Franco-Nevada action would languish. In fact, when a stock like this drops this much, whether in a bull or bear market, you want to be careful.
You see, Franco-Nevada may be gold stock, but it’s a streaming and royalty company and not a miner. This means that the company buys gold at low prices from third-party miners under contracts in exchange for initial funding, and then sells this gold at the spot price.
Its purchase price, in fact, is often so low that Franco-Nevada can earn large margins even if gold prices fall. In the second quarter, Franco-Nevada generated record quarterly revenues and achieved the highest margins ever. Still, the stock is currently trading well below its average price-to-sales ratio of five, thanks to its recent sharp decline.
Economists now believe a recession is imminent in the United States Even if the economy weakens a little, gold prices – and with them gold stocks – could recover. Among gold stocks, however, Franco-Nevada should be a top choice because it has historically generated exceptional returns over long periods of time and has even increased its dividends every year for the past 15 consecutive years.
A very cheap dividend stock
Matt DiLallo (Child Morgan): Kinder Morgan generates relatively stable cash flow regardless of market conditions. natural gas pipeline giant is on track to produce $4.7 billion in distributable cash flow this year, or about $2.17 per share. That’s about 5% above its initial budget, thanks to stronger than expected conditions in the energy market. At recent stock prices of around $18 per share, Kinder Morgan is trading at around eight times its cash flow. That’s cheap for a business that generates a growing stream of consistent cash flow in any market environment.
Kinder Morgan only uses about half of its cash to support its dividend, which is currently yielding more than 6% due to its very cheap valuation. This gives it a huge cushion to continue paying dividends if market conditions deteriorate. It also leaves the company with plenty of excess cash to pay off debt, fund expansion projects and buy back its very cheap stock.
The company focuses on long-term investing. It is expanding several gas pipelines, building a renewable natural gas platform, and building a few renewable fuel centers. These investments help the company take advantage of the long-term energy transition to cleaner fuels. They will also help increase the company’s cash flow in the years to come. This should allow Kinder Morgan to continue to increase its dividend, which it has been doing for five years.
Kinder Morgan is a stable company, making it a solid investment regardless of market conditions. It generates a lot of cash, which gives it the funds to pay a large dividend and continue its expansion, which should create long-term shareholder value. With its cheap stocks right now, it’s a solid option for investors unsure of the direction of the market.
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Matthew DiLallo holds positions at Kinder Morgan. Neha Chamaria has no position in the stocks mentioned. Reuben Gregg Brewer holds positions in Franco-Nevada. The Motley Fool holds positions and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.