Even though the economy continues its rebound and the market hits new highs, economic data is seeing mixed messages. In situations like these, it’s crucial that investors consider stocks that check every box which is why investors should consider adding smart stocks such as Gap Inc. (GPS), Apache (APA), and Ryder System (R) to their portfolio.
With a continued influx of mixed economic data, investors may be wondering where to put their money. For example, while yesterday’s report on weekly jobless claims met estimates, producer price increases came in hotter than expected. Even with the economic rebound still in play, surging cases of COVID remain in the back of most investors' minds.
In times like these, it's essential to invest in strong companies. Strong companies are those exhibiting attractive valuations, robust growth profiles, solid balance sheets, and are trading in uptrends. One way to find these stocks is through our proprietary POWR Ratings system that evaluates stocks based on 118 different factors.
The system also grades stocks based on six different components. This allows us to screen for stocks that grade highly across these components. And this is what I did for this article. I looked for stocks rated a Strong Buy in our ratings system that also graded highly in those components. Gap Inc. (GPS), Apache Corporation (APA), and Ryder System, Inc. (R) are three stocks that certainly fit the bill and are worth a look.
Gap Inc. (GPS)
GPS is an international specialty retailer offering a wide variety of clothing, accessories, and personal care products. The company's products include denim, tees, button-downs, khakis, and fitness and lifestyle products for training, sports, travel, yoga, and other activities. Products are sold under the Old Navy, Gap, Banana Republic, Athleta, Intermix, and Hill City brands.
The company is benefiting from strong business trends in the apparel industry. In particular, GPS has seen strength in its Old Navy and Athleta brands. Its Gap business is also increasing its market share in North America. Old Navy, though, which provides affordable, high-quality fashion, is the major long-term growth opportunity for the company.
As it competes in the discount apparel industry, which has been healthier than other apparel areas, Old Navy's sales improved 27% year over year in the first quarter. The brand has also seen a significant acceleration in the digital business, which skyrocketed during the pandemic. Its Athleta brand has established itself in the fast-growing women's athleisure market.
Athleta stores are expected to double over the next decade. GPS has an overall grade of A, which translates into a Strong Buy rating in our POWR Ratings system. The company has a Growth Grade of B, which isn't surprising as sales are expected to rise 24% for the year, while earnings are forecasted to rise 182.9% this year.
GPS also has a Momentum Grade of A, as the stock is up 50% so far in 2021 and over 100% over the past year. We also provide Value, Stability, Sentiment, and Quality Grades for GPS, which you can find here. GPS is ranked #6 in the A-rated Fashion & Luxury industry. You can find other top stocks in this industry by clicking here.
Apache Corporation (APA)
Based in Houston, APA is one of the world's leading independent energy companies. It is engaged in the exploration, development, and production of natural gas, crude oil, and natural gas liquids, with operations in the United States, Egypt, and the North Sea of the United Kingdom. It also holds acreage offshore Suriname, which is in South America.
In the U.S., it operates in the Permian Basin with 2.9 million gross acres in the region, making it one of the largest oil producers in Permian. The company has exposure to the Midland Basin, Delaware Basin, and Central Basin Platform/Northwestern Shelf. The Alpine High find, which is located in the southern portion of the Delaware Basin, is expected to be a major growth driver going forward.
Plus, APA's discoveries in Suriname, through a joint venture with TotalEnergies, are expected to become one of the company's major assets, providing significant cash flow potential. This discovery could open the door to large-scale developments there. And the partnership with TotalEnergies means APA's capital commitment will be reduced.
APA's sales have also benefited from improved commodity price realizations. The company has an overall grade of A and a Strong Buy rating in our POWR Ratings system. The company has a Value Grade of B due to its low valuation. Its trailing P/E of 10.23 and forward P/E of 6.46 are very low. APA also has a Quality Grade of A.
As of the most recent quarter, the company had $1.2 billion in cash compared with only $215 million in short-term debt. Its gross margin of 36.1% is also higher than the industry average. We also provide Growth, Momentum, Stability, and Sentiment Grades for APA, which you can find here. APA is ranked #3 in the Energy – Oil & Gas industry. For more top-ranked stocks in this industry, click here.
Ryder System, Inc. (R)
R is a provider of supply chain and fleet management solutions in the United States. The company offers fleet leasing, fleet maintenance, truck rental, dedicated transportation, transportation management, freight brokerage, supply-chain optimization, and warehouse and distribution solutions. It serves a host of industries including, automotive, consumer packaged goods, and industrial manufacturing, to name a few.
The company is benefiting from improving economic and freight conditions. Its Supply Chain Solutions segment has been aided by new business and higher volumes, and its Fleet Management Solutions segment is gaining from increased rental pricing. Management has raised its earnings guidance for 2021 due to these conditions.
As the freight environment continues to improve, so should the company's fortunes. The company anticipates these conditions to remain strong into next year. Plus, higher pricing in its lease and commercial rental businesses and strong demand in its commercial rental unit should help drive sales. This is great news for a company that was generating losses and increasing debt when the pandemic hit.
Plus, the chip shortages are leaving new truck production short of what the industry needs. This should continue to push many companies to lease R's trucks. The company has an overall grade of A, translating into a Strong Buy Rating in our POWR Ratings system. R has a Growth Grade of A, which makes sense as earnings are expected to rise 2,259.3% this year.
R also has a Momentum Grade of B with the stock rising 6.8% for the month and 111% over the past year. For the rest of R's grades (Value, Stability, Sentiment, and Quality), click here. R is ranked #2 in the A-rated Trucking Freight industry. For more top stocks in this highly rated industry, make sure to visit this link.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years
If you would like to see more of his best value stock ideas, then click the link below.
GPS shares were trading at $27.96 per share on Monday afternoon, down $0.93 (-3.22%). Year-to-date, GPS has gained 40.11%, versus a 20.27% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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