Cyclical stocks have been the biggest beneficiaries of the fast-paced economic revival with investors now betting on turnaround candidates as the economy climbs back towards pre-pandemic operational levels. The United States’ real GDP increased at a6.4% annualized rate in the first quarter, ended March 31.
A robust COVID-19 vaccination drive, rising consumer spending and declining unemployment rates indicate bright prospects for cyclical stocks. Furthermore, President Biden’s proposed American Jobs Plan and revised income tax rates should boost per capita income levels among the middle class. As people engage in outdoor activities following more than a year of social distancing, cyclical companies are expected to witness soaring demand for their products and services.
Given this backdrop, we think it is wise to invest in fundamentally sound cyclical stocks EOG Resources, Inc. (EOG), Chipotle Mexican Grill, Inc. (CMG), and The Chemours Company (CC). They are poised to deliver significant returns in the coming months.
EOG Resources, Inc. (EOG)
EOG explores, develops, produces, and markets crude oil, natural gas and natural gas liquids worldwide. The company operates primarily in major producing basins in the United States, Canada, Trinidad, the United Kingdom’s North Sea, and China.
EOG’s total crude oil and condensate volumes have been set at 437.5 – 448.5 MBod for the second quarter of 2021, after achieving 431 MBod in the first quarter. Its average crude oil and condensate prices have increased 23.6% year-over-year to $58.02/Bbl. This is also likely to attract new capital investments into the reviving energy and power sector.
For its fiscal year 2021 first quarter, ended March 31, EOG’s total revenues from its crude oil and condensate division increased more than 9% year-over-year to $2.25 billion. Its revenue from its natural gas division increased 197.6% year-over-year to $625 million. The company’s operating income came in at $932 million, up 1506.9% from the prior-year period. While its adjusted net income increased 197.5% year-over-year to $946 million, its adjusted EPS increased 194.5% year-over-year to $1.62.
A $1.37 consensus EPS for the current quarter, ending June 30, 2021, represents a 695.7% year-over-year improvement. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $3.85 billion consensus revenue estimate for the current quarter, represents a 249.1% rise from the prior-year period. The stock’s EPS is expected to grow at a 49.3% rate over the next five years. EOG has climbed 87.1% over the past nine months to close yesterday’s trading session at $85.27.
It’s no surprise that EOG has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum, and a B grade for Growth, Quality and Sentiment. To see additional POWR Ratings for EOG’s Value and Stability, click here.
EOG is ranked #19 of 94 stocks in the Energy - Oil & Gas industry.
Chipotle Mexican Grill, Inc. (CMG)
CMG operates fast casual and fresh Mexican food restaurants. The company categorizes its restaurants as end-caps, in-lines, free-standing or other, and serves a menu of burritos, tacos, burrito bowls and salads. As of December 31, 2020, it operated 2,724 Chipotle restaurants in the United States, 40 international Chipotle restaurants, and 4 non-Chipotle restaurants.
On April 29, CMG and Grammy-winning musician and farmer, Jason Mraz, launched the Aluminaries Project, an accelerator program designed to support ventures from across the country that are building sustainable, equitable, and efficient food systems. The initiative is expected to help identify innovative solutions to solve the challenges within the nation's supply chain, and thus become technologically efficient and serve customers with better food.
According to CMG’s 2020 Sustainability Report, published on April 15, the company has achieved a 51% waste diversion rate through recycling, composting, and waste-to-energy programs, reaching a key goal outlined in its 2018 Sustainability Report. Consequently, the company has set new goals to reduce overall waste by 5% by 2025 and to pilot a new packaging system in 2021 to reduce plastic usage.
For the first quarter, ended March 31, CMG’s total revenue increased 23.5% year-over-year to $1.74 billion. The company’s income from operations came in at $161.44 million, up 127% from the prior-year period. Its adjusted net income was $153.13 million for the quarter, which represents a 75.7% improvement year-over-year. Its adjusted EPS also increased 74% from the prior-year period to $5.36.
Analysts expect DE’s EPS to improve 75.5% year-over-year to $4.52 for the current quarter, ending July 30, 2021. The stock surpassed consensus EPS estimates in each of the trailing four quarters. And its $10.30 billion consensus revenue estimate for the current quarter represents a 31.1% rise on a year-over-year basis. Analysts expect the stock’s EPS to grow at a 37.6% rate per annum over the next five years. DE has gained 135.8% over the past year and closed Friday’s trading session at $361.10.
CMG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has an A grade for Growth, and a B grade for Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see CMG’s ratings for Value, Momentum, Stability and Sentiment here.
CMG is ranked #20 of 47 stocks in the A-rated Restaurants industry.
The Chemours Company (CC)
CC manufactures and distributes performance chemicals worldwide. The company produces titanium dioxide, refrigerants, industrial fluoropolymer resins, and industrial and specialty chemicals for gold producing, oil refining, agriculture, and other industries. It serves various industries that include electronics, communications, automotive, wire and cable, energy, oil and gas, and aerospace.
On May 27, CC announced its selection by Johnson Controls International PLC (JCI), a technology and multi-industrial company that creates intelligent buildings, efficient energy solutions, and integrated infrastructure, to include CC’s Opteon XL41 as the future refrigerant solution for JCI’s ducted residential and commercial HVAC products, and air-cooled scroll chillers. By providing low global warming potential (GWP) refrigerant solutions, CC’s products are expected to gain expanded market reach among companies in the HVAC industry as they transition away from using high GWP refrigerants.
CC signed a memorandum of understanding (MoU) with the Beijing National Aquatics Center, Beijing National Indoor Stadium and Wukesong Sports Center on May 18 regarding using Opteon lower GWP refrigerants at their venues. Working on the 2022 Olympic and Paralympic Winter Games, the agreement supports the adoption of more sustainable solutions for the ice rink venues to help reduce their overall carbon footprint. CC expects to have a long-term partnership with these entities in the coming game events.
For its 2021 first quarter, ended March 31, CC’s revenue came in at $1.44 billion, which represents a 10% improvement year-over-year. The company’s income before taxes is reported to be $101 million for the quarter, up 31.2% from the prior-year period. While its adjusted net income increased 1.7% year-over-year to $120 million, its adjusted EPS remained flat at $0.71.
Analysts expect CC’s EPS for the current quarter, ending June 30, 2021, to be $0.91, up 404.5% year-over-year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. For the current quarter, analysts expect CC's revenue to be $1.51 billion, representing a 37.9% rise from the prior-year period. The stock’s EPS is expected to grow at an 18% rate per annum over the next five years. CC has gained 175.4% over the past year and 72% over the past nine months. It closed yesterday’s trading session at $37.14.
CC's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has a B grade for Growth, Value and Quality. We have also graded CC for Stability, Sentiment and Momentum. Click here to access all CC's ratings.
CC is ranked #26 of 99 stocks in the A-rated Chemicals industry.
EOG shares were trading at $86.81 per share on Thursday afternoon, up $1.54 (+1.81%). Year-to-date, EOG has gained 76.14%, versus a 12.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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