The latest Fed minutes indicate that the recent banking crisis could push the economy into a recession later this year. Despite the cooler-than-expected March CPI report, growing recession fears weighed heavily on market sentiment.
According to top analysts, UnitedHealth Group Incorporated (UNH), Clean Energy Fuels Corp. (CLNE), and Altus Power, Inc. (AMPS) are the best stocks to buy now. But I don’t agree with their recommendations for all three stocks. In this piece, I have discussed why it could be worth buying UNH and staying away from CLNE and AMPS.
Yesterday, the Labor Department reported that the consumer price index (CPI) rose just 0.1% month-over-month in March and 5% from a year ago, below estimates of 0.2% and 5.1%, respectively. The gains of equities earlier in yesterday’s session, spurred by a cooler-than-expected inflation report, were erased as the Fed minutes’ warning fueled investors’ fears of an impending recession.
According to the Fed’s March meeting minutes released yesterday afternoon, recent fallout from the banking crisis will likely push the economy into recession later this year. Although Vice Chair for Supervision Michael Barr said the financial sector “is sound and resilient,” staff economists expect the economy to take a hit.
The Fed officials project gross domestic product (GDP) growth of just 0.4% for 2023. Furthermore, the International Monetary Fund (IMF) slashed its global growth forecast to 2.8% for this year, down 0.1% from the previous projection in January. The IMF said that five years from now, global growth is expected to be around 3%, the lowest medium-term forecast in its World Economic Outlook report for over 30 years.
“The anemic outlook reflects the tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine, and growing geoeconomic fragmentation,” the IMF said in the report.
Let’s delve into the fundamentals of UNH, CLNE, and AMPS.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company. It operates through four segments: UnitedHealthcare; Optum Health; OptumInsight; and OptumRx. The company provides consumer-oriented health benefit plans and services; health care coverage and well-being services to individuals aged 50 and older; Medicaid plans and children’s health insurance; and other pharmacy services.
Among the eleven Wall Street analysts who rated UNH, 10 rated it Buy, while one rated it Hold. On April 5, Raymond James Analyst John Ramson upgraded this stock to Strong Buy from Outperform and raised his price target to $630 from $615. The consensus 12-month price target of top analysts who rated UNH a Buy implies an upside of 15.3%.
On February 22, UNH and Somatus, the nation’s leading value-based kidney care company, expanded their long-standing and successful value-based partnership to provide differentiated kidney care services to thousands of new members throughout Connecticut, Illinois, Massachusetts, New Jersey, and Rhode Island.
With the expansion of this agreement, UNH would serve more patients living with kidney disease.
On January 23, Optum Rx, UNH’s pharmacy services company, launched Price Edge, a tool that seamlessly compares available direct-to-consumer pricing for traditional generic drugs with insurance pricing to ensure members receive the lowest prescription drug price. This new generic drug pricing tool should bode well for the company.
In terms of forward EV/Sales, UNH is currently trading at 1.48x, 59.3% higher than the industry average of 3.65x. Also, the stock’s forward Price/Sales multiple of 1.35 is 67.7% higher than the industry average of 4.18.
For the fourth quarter that ended December 31, 2022, UNH’s total revenues increased 12.3% year-over-year to $82.79 billion. The company’s earnings from operations rose 25.5% from the year-ago value to $6.89 billion. Also, adjusted net earnings attributable to UNH common shareholders were $5.06 billion and $5.34 per share, an increase of 18.1% and 19.2% year-over-year, respectively.
UNH’s annual dividend of $6.60 yields 1.27% on the current share price. The company’s dividend payouts have grown at a 15.2% CAGR over the past three years and 17.1% CAGR over the past five years. UNH has raised its dividend for 13 consecutive years.
Analysts expect UNH’s revenue for the fiscal year (ending December 2023) to come in at $359.70 billion, indicating an 11% year-over-year improvement. The company’s EPS for the current year is expected to grow 12.4% year-over-year to $24.93. Moreover, it surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is quite impressive.
Furthermore, the company’s revenue and EPS for fiscal 2024 are expected to increase by 7.6% and 13.6% from the previous year to $387.11 billion and $28.31, respectively. Shares of UNH have gained 12.7% over the past month to close the last trading session at $521.19.
UNH’s POWR Ratings reflect its solid fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UNH has a B grade for Growth, Stability, and Sentiment. In the A-rated 10-stock Medical – Health Insurance industry, it is ranked #4.
Beyond what has been stated above, we’ve also given UNH grades for Value, Quality, and Momentum. Get all UNH ratings here.
Clean Energy Fuels Corp. (CLNE)
CLNE offers natural gas as an alternative fuel for vehicle fleets and related fueling solutions in the United States and Canada. The company sells renewable natural gas (RNG), compressed natural gas (CNG), and liquefied natural gas (LNG) and provides operation and maintenance services for public and private vehicle fleet customer stations.
Raymond James analyst Pavel Molchanov recently upgraded CLNE from Market Perform to Outperform with a price target of $6. The consensus 12-month price target of five out of six analysts who rated CLNE a Buy indicates an upside of 116%.
Despite a series of upgrades by top analysts, CLNE’s fundamentals tell a different story.
CLNE’s forward EV/Sales multiple of 2.65 is 45.1% higher than the industry average of 1.83. Likewise, the stock’s forward EV/EBITDA of 17.39x compares to the industry average of 5.22x. Also, its forward Price/Sales of 2.80x is 117.1% higher than the 1.29x industry average.
For the fourth quarter that ended December 31, 2022, CLNE’s total operating expenses increased 27.4% year-over-year to $124.91 million. Its operating loss worsened by 82.9% from the year-ago value to $11.15 million. Also, the company’s adjusted EBITDA decreased 29.9% year-over-year to $12.64 million.
Furthermore, non-GAAP net income attributable to CLNE came in at $2.05 million and $0.01 per share, down 68.2% and 66.7% year-over-year, respectively. As of December 31, 2022, the company’s total liabilities stood at $354.89 million, compared to $201.66 million as of December 31, 2021.
Street expects CLNE’s revenue for the fiscal year (ending December 2023) to decline 15.1% year-over-year to $356.88 million. The company is expected to report a loss per share of $0.06 for the ongoing year. Also, CLNE has failed to surpass the consensus revenue estimates in three of the trailing four quarters.
Over the past year, CLNE has plunged 39.6% to close the last trading session at $4.49.
CLNE’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, translating to a Sell in our proprietary rating system.
CLNE also has an F grade for value and a D for Growth and Stability. The stock is ranked #40 of 44 stocks in the Energy-Services industry.
Click here to see CLNE’s POWR Ratings for Sentiment, Quality, and Momentum.
Altus Power, Inc. (AMPS)
AMPS is a clean electrification company that owns, constructs, and operates roof, ground, and carport-based photovoltaic solar energy generation and storage systems. The company serves commercial, industrial, public sector, and community solar customers.
All five analysts who recently rated AMPS gave it a Buy recommendation. The consensus 12-month price target of analysts implies an upside of 93.8%. On April 4, Ryan Levine from Citigroup maintained a Buy rating on the stock, with a price target of $7.
Despite being rated a Buy by top analysts, AMPS is not an ideal investment due to its weak fundamentals and gloomy outlook, as discussed below.
In terms of forward non-GAAP P/E, AMPS is currently trading at 36.09x, which is 95.52% higher than the 18.46x industry average. And the stock’s forward EV/Sales multiple of 7.87 is 97% higher than the industry average of 4. Moreover, its forward Price/Sales of 4.40x is 92.5% higher than the 2.29x industry average.
AMPS’ total operating expenses increased 855.7% year-over-year to $25 million for the fourth quarter that ended December 31, 2022. Its operating income decreased 90.7% year-over-year to $1.76 million. In addition, as of December 31, 2022, the company’s cash and cash equivalents were $193.02 million, compared to $325.98 million as of December 31, 2021.
Analysts expect AMPS’ EPS to decline 81.8% year-over-year to $0.03 for the current quarter ending June 2023. Also, the company’s EPS for the fiscal year 2023 is expected to decrease 69.6% year-over-year to $0.11. The stock has declined 50.8% over the past six months and 28.8% over the past year to close the last trading session at $4.85.
AMPS’ weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system.
AMPS has an F grade for Growth and a D for Value and Stability. It is ranked #63 out of 64 stocks within the D-rated Utilities-Domestic industry. Click here to access the other ratings of AMPS for Sentiment, Quality, and Momentum.
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UNH shares were unchanged in premarket trading Thursday. Year-to-date, UNH has declined -1.35%, versus a 7.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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