Investors may be interested in the following securities since their forward price-earnings multiples are trading below or around the historical S&P 500 average price-earnings multiple of 15. The projections of future earnings are based on data from Morningstar analysts.
Norwegian Cruise Line
The first stock to make the cut is Norwegian Cruise Line Holdings Ltd. (NCLH, Financial), a Miami, Florida-based cruise operator with a fleet of 28 ships for a total of 59,150 berths that sail to various destinations around the world.
Norwegian Cruise Line has a forward price-earnings ratio of 10.14, which results from Thursday’s closing price of $14.39 per share and analyst expectations for net earnings per share of approximately $1.42 for the next full fiscal year.
The stock has dropped 48.79% over the past year for a market capitalization of $6.06 billion and a 52-week range of $10.31 to $29.45.
From a profitability perspective, the company has a negative operating margin as it continues to factor in the impact of travel restrictions and other measures to prevent the spread of the Covid-19 virus during the pandemic. In addition to the pandemic issue, the war in Ukraine and unfavorable economic conditions weighed on the company's business.
Total revenue for the trailing 12 months through the second quarter increased to $2.35 billion from $23.6 million in 2021. Despite this, operating income continued to deteriorate from a loss of $2.24 billion for the trailing 12 months that ended June 30, 2021 to a loss of $2.46 billion this year.
Despite the anticipated improvement in occupancy rates (the company expects a 1.34 times sequential increase to about 80% for the third quarter of 2022), the result would not yet be enough to avert another loss for the current quarter.
While the fallout from the pandemic and headwinds from global geopolitical tensions surrounding the Russia-Ukraine conflict may continue to weigh on business results, analysts remain optimistic that the company will return to positive net income in the near future.
Analysts project Norwegian Cruise Line will report positive net income from continuing operations of $1.40 per share in 2023, but are forecasting another loss of $3.76 per share in 2022. The reversal in net income could potentially lead to a strong recovery in the share price.
On its balance sheet as of June 30, the company had $1.9 billion in cash, but was encumbered with approximately $12.2 billion in total debt, up from $11.6 billion in 2021.
Wall Street sell-side analysts issued a median recommendation rating of overweight for the stock with an average price target of $17.23 per share.
The second stock that qualifies is Kinross Gold Corp. (KGC, Financial), a Toronto, Canada-based explorer, developer and miner of gold properties in the U.S., Brazil, Chile, Russia, Mauritania and Ghana.
Kinross Gold has a forward price-earnings ratio of 8.73, which derives from Thursday’s closing price of $3.55 per share and analyst expectations for earnings of approximately 41 cents per share for the next full fiscal year.
The stock has fallen 32.77% over the past year for a market capitalization of $4.61 billion and a 52-week range of $3 to $7.13.
The profitability of the business depends on the price of the precious metals and production volumes. The company reported an increase in gold equivalent production to nearly 454,000 ounces in the second quarter of 2022, representing 19% year-over-year growth, driven by higher metal concentration in the mineral and higher throughput at its deposits in Mauritania.
Despite higher production of saleable metal, total all-in sustaining costs per gold equivalent ounce increased 16.6% year over year to $1,341 in the second quarter, reflecting inflationary pressures on energy and inputs combined with an increase in waste materials being removed during mining.
The company realized revenue of $1,872 per ounce of GEO from sales of the precious metal in the second quarter, up 3.2% from the year-ago quarter. However, higher production costs due to inflationary pressures weighed heavily on margins as a higher price for the precious metal showed it was unable to avoid a 12.3% year-over-year margin decline to $845 per GEO for the quarter.
As such, pro forma net income from ongoing mineral activities was 3 cents per share, compared to 5 cents in the prior-year quarter.
For the upcoming period, the company calls for production of between 2.04 million and 2.26 million ounces of GEO in 2022 and between 2.19 million and 2.42 million ounces of GEO in 2023.
However, the AISC is expected to continue increasing in the near future. In 2022, this should be $1,240 per GEO, up from $1,138 per GEO in 2021. In the absence of a specific company forecast for AISC in 2023, the following gives an idea of how the item could continue to develop: It is possible that despite the U.S. Federal Reserve's aggressive stance to slow down the rapid rise in prices of goods and services, some inflationary pressures will persist and the AISC will rise slightly further in 2023. This inflation seems fairly entrenched given the nature of its triggers.
Therefore, in addition to higher production, a lot of help will be needed from the gold price, but it currently seems to be suffering from rising interest rates. Gold futures, which expire in December of this year, have fallen steadily since earlier in 2022, roughly when the Fed started raising interest rates. Year-to-date contracts are down 9.5% to a level of $1,653.80 an ounce as of this writing.
This gold price is well below (down 11.6%) the average Kinross Gold was able to generate from sales in the second quarter and is expected to continue this trend in lockstep with interest rates tightening. This factor makes it a risky stock to invest in now.
But after the interest rate hike, the economy could enter a recession phase as early as this quarter, according to analysts. This, combined with geopolitical tensions centered around the Russia-Ukraine conflict, could trigger a period of heightened market volatility along with increased uncertainty.
Assuming investors buy enough safe-haven gold to involuntarily create an imbalance between demand and supply, a higher gold price environment could emerge. In order for the price to recover above its second-quarter level, demand for gold as a hedging instrument must increase sharply in the face of tighter monetary policy. This is quite difficult, but not impossible given the current macroeconomic conditions. Should this happen, Kinross Gold's operations and earnings are sure to benefit, which will be reflected in very strong upside potential for the share price.
Wall Street sell-side analysts issued a median recommendation rating of overweight with an average price target of $5.89 per share.
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