2 Top-Ranked “Defensive” Stocks to Buy After Earnings
There have been a few stocks in the Zacks Industrial Products and Oils & Energy sectors that have outperformed the broader market in recent years amid inflation concerns.
Many of these stocks can benefit from higher commodity prices correlating with rising inflation and serve as a defensive hedge for investors.
Let’s take a look at two of these top-tier stocks that are starting to stand out after their strong earnings reports.
Arch Resources (ARC)
With a Zacks rank of #1 (Strong Buy), Arch Resources stock continues to stand out after beating expectations for fourth-quarter revenue and earnings.
Arch Resources beat bottom line expectations by an impressive 113% with earnings per share of $23.18, up 75% from $13.19 per share a year ago. Bottom line, the coal producer beat estimates by 19% with revenue of $859.46 million, up 6% year over year.
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As one of the largest coal producers in the world, operating nine mines in the main US coal basins, Arch Resources’ revisions to its fiscal 2023 and 2024 earnings estimates continued to rise. That could continue after Arch Resources more than doubled its earnings expectations for the fourth quarter. The company attributed improved sales volume, unit costs and cash margins to its excellent performance.
Fiscal 2023 earnings are expected to decline -28% to $46.10 per share after a very exceptional 2022 with earnings per share of $63.88. However, earnings estimates for FY23 have continued to climb, rising 12% in the most recent quarter. Additionally, earnings estimates for fiscal 24 are up 11% over the last 90 days, although ARCH’s EPS is expected to fall another -29% to $32.46 as higher coal prices begin to calm down.
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Also, Arch Resources’ bottom line would still be well above historical levels. Bottom line, sales would also remain above historical levels, although forecast to fall -15% in FY23 and another -14% in FY22 to $2.69 billion based on Zacks estimates.
Shares of ARCH rose 9% after the stellar quarterly results. Arch Resources stock is up +11% year-to-date, outperforming the S&P 500 by +6% and the coal markets by -1%. Even better, ARCH has surged a stellar +223% over the past two years amid higher inflation to break the benchmark’s +3% and roughly match the +226% of its Zacks sub-industry.
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Reliance Steel & Aluminum Co. (RS)
Reliance Steel & Aluminum also stands out after its Q4 report, whose stock also has a Zacks #1 rank (Strong Buy). The metals service center operator continued to benefit from higher commodity prices, beating bottom line expectations by 31% with Q4 EPS of $5.87, albeit down -14% year-on-year after an exceptional year-ago quarter.
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Fourth-quarter revenue slightly missed expectations, falling -1% to $3.61 billion, down -9% year over year. Still, fiscal 2022 was a record year for annual net sales at $17.03 billion. Reliance also had a record year for annual earnings per share of $30.03 along with record quarterly and annual cash flow following the fourth quarter of $808.7 million and $2.12 billion, respectively.
Zacks estimates Reliance’s earnings are expected to fall -39% to $18.26 per share in fiscal 2023 after a record year. That aside, earnings estimates are up 11% over the quarter. FY23 revenue is forecast to fall -17% to $14 billion, but Reliance’s top and bottom line numbers remain well above historical levels.
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Even more impressive, Reliance stock is now up 22% YTD to outperform metals producer markets by +15% and outpaced rallies among broader indices. Additionally, RS shares are up +95% over the past two years to also outperform the +68% of the Zacks sub-sector and benchmark.
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bottom line
Both Arch Resources (ARCH) and Reliance Steel & Aluminum (RS) have been leaders in their respective industries and their shares continue to look attractive following fourth quarter results. These are two names to keep an eye on for investors in 2023, as their strong performances appeared poised to continue with rising earnings estimate revisions.
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