July 27th, 2022 | 13:14 CEST
Value stocks for today and the future: McDonald's, Saturn Oil + Gas, Coca-Cola
Table of contents:
"[...] The Oxbow Asset now delivers a substantial free cash flow stream to internally fund our impactful drilling and workover programs. [...]" John Jeffrey, CEO, Saturn Oil + Gas Inc.
Coca-Cola: These figures were good
Two typical value stocks are McDonald's and Coca-Cola. Their business models are as simple as they are ingenious: there is good money to be made from food and drink. Even in difficult economic times, people still go to McDonald's or reach for a cool Coke. Moreover, the brands with the golden M and the iconic white lettering on a red background have great appeal worldwide - regardless of where people come from, whether they are poor or rich: Coca-Cola and McDonald's attract customers of all backgrounds. In addition to their strong brands and unbeatable business models, both companies often score points with their valuation. But is that currently the case?
Coca-Cola's P/E ratio is currently around 27, and the Company is on a growth path. In the first quarter of 2022, sales climbed 16.3% and profits were up 23.9%. Except for Asia, operating numbers grew by double digits in every global region. In Asia, the lockdown in China weighed. This is, therefore, a special effect. While the P/E ratio of more than 25 is not cheap at first glance, Coca-Cola has strong pricing power and products that almost sell themselves. The good figures speak for this. With various sugar-free alternatives, the Company also appeals to the health-conscious.
McDonald's: Russia shock weighs heavily on the stomach
McDonald's has also taken a step toward the health-conscious area and now offers numerous vegan alternatives and salads. Coca-Cola's sugar-free fizzy drinks are also traditionally found at the burger joints of the golden M. At 27, McDonald's P/E ratio has also reached a high level for typical value stocks. In addition, McDonald's figures are weaker. Store closures in Russia have weighed on earnings. First-quarter profit shrank 28% to USD 1.1 billion. Net sales climbed at least 11%. Despite the mixed numbers, McDonald's remains strong internationally. The figures should also improve again after the Russia shock.
Saturn Oil & Gas: 2022 EBITDA significantly above market capitalization
Investors don't get much "value" from Coca-Cola and McDonald's, given their high valuations - too many investors rush into stocks that have been known as value stocks for years. Yet there are also companies scoring points these days with P/E ratios in the low single digits and enjoying a special boom - like the Canadian oil producer Saturn Oil & Gas. At the end of the first half of the year, the Company announced its outlook for the current fiscal year and beyond. In the most recent guidance for the full year 2022, Saturn reported EBITDA of CAD 155 million - with a current market capitalization of just CAD 139 million. The company will reach the 12,000 BOE per day mark for the foreseeable future following its recent acquisition of another 4,000 BOE per day.
Saturn Oil & Gas aims to be debt-free from 2024 - the acquisitions made only last year and this year would then have paid for themselves directly and would also contribute directly to profits after interest. The market has not yet fully caught on to this perspective. Many investors still see Saturn Oil & Gas as an aggressive growth stock. However, the latest guidance and the quarterly reports before that have already shown that the Company is heading in the direction of value. This is further supported by the fact that management has historically used high oil prices to hedge production and limit shareholder risk. Only yesterday, analysts at Eight Capital initiated their coverage of Saturn Oil & Gas and see the price target at CAD 7.50. The analysts also stress that the current valuation does not reflect the Company's potential.
While companies like McDonald's and Coca-Cola are in a different position due to their size and strong brands, which justifies some premium, Saturn Oil & Gas appears relatively undervalued given the bare numbers. Moreover, the current situation in the energy market shows that oil will continue to gush as reliably as Coke in a McDonald's store for years to come. Saturn Oil & Gas supplies the coveted material from Canada, which is entirely harmless politically and has been implementing its own ESG policy for years, which includes, among other things, providing targeted support for young women entering the energy industry in Canada. In 2022, the share price performance of Saturn Oil & Gas has been anything but pleasing, but valuations are now extremely low - a turnaround is a question of economic common sense.
Conflict of interest
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