Special Update: Value Looks Good Despite Hot CPI Report

The market is having a bit of a setback today, with the S&P 500 opening 1.4% lower. The primary culprit for this morning’s setback is a the hotter-than-expected Consumer Price Index (CPI) report, which showed prices have increased 3.1% in the past 12 months versus expectations for a 2.9% annual rate.

Given the inflation report, the market may experience a brief digestive period, as investors’ hopes for a near-term cut in the Federal Funds rate were likely dashed today.

Still, I don’t want us to panic over today’s CPI report. It has still been a better year for value stocks and Value Authority, and our stocks should continue to see nice gains from their current prices throughout 2024. The fact is valuations remain reasonable.

Most of our companies remain inexpensive even if rates move closer to last year’s highs. In fact, higher rates could help eliminate the excesses in growth stocks that have built up already this year. Then, money could flow into more favorably priced stocks that are less sensitive to changes in interest rates.

So, I remain confident that the improved performance in value stocks still has room to run in 2024.

Earnings Update

Both Sonoco Products (SON) and Kraft Heinz (KHC) will report fourth-quarter results tomorrow. We previewed these reports in our January 16 special update. You may recall that Sonoco Products is expected to report EPS of $1.04, vs. $1.27 last year, on a 4% decline in revenues, while Kraft Heinz is forecast to announce EPS of $0.77, vs. $0.85 last year, on a 5.4% decline in revenues. I will have my comments on the earnings and the stocks’ reaction later in the week.

Fidelity National Information Services (FIS) will report fourth-quarter earnings on Feb 26, and again results were previewed in our January 16 update. Expectations calls for EPS of $0.94, vs. $0.98 last year.

Hold SON, KHC and FIS in front of earnings.

Genuine Parts (GPC) will report fourth-quarter earnings on Friday. Expectations are for EPS of $2.19, vs. $2.05 last year, on a 2.2% increase in revenues. Close attention will be given to whether the company has overcome the shortage of inventories that hurt third-quarter results, which gave us an opportunity to buy the position. Given the company’s long and steady growth record, I believe GPC will overcome the issue, and cost cuts will also help the bottom line.

The stock has done well recently, but it is selling for only 14.5X 2024 EPS estimates. So, there is more upside. GPC is a buy under $136. My target is $160.