A years-long run of cheap capital availability seems to be coming to an end now, mostly because the U.S. inflation rate is hovering near a 40-year high. On Feb. 10, the Labor Department announced a 7.5% year-over-year hike in the consumer price index (CPI: a metric used to gauge inflation) for January 2022. This macroeconomic environment is not well suited for many high-risk growth stocks, especially those with sky-high valuations.
In the face of imminent monetary policy-tightening, reasonably priced stocks with solid fundamentals stand a better chance of generating attractive returns at the moment. Investors with just $300 in available funds (i.e., funds not already earmarked for bills, emergency funds, credit card debt, retirement, or other contingencies) might want to consider investing in the following two stocks right now.
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1. Ford
Shares of legacy automotive manufacturer Ford Motor Company (F 0.47%) are down by over 9% since the company released its fourth-quarter 2021 earnings report back in January. Investors were apparently disappointed about the company missing its consensus revenue and earnings estimates in the fourth quarter (ended Dec. 31), as well as the seemingly unimpressive fiscal 2022 guidance from management.
Ford is also facing some challenges at the moment, like a semiconductor shortage and other supply chain disruptions, rising commodity costs, and inflationary pressures. These challenges are hurting margins. Despite this, Ford is holding steady as a company thanks to a strong pricing environment and rapidly improving product mix. The company reported adjusted earnings before interest and taxes (EBIT) of $10 billion in fiscal 2021, the highest performance since 2016.
Ford's legacy internal combustion engine business continues to be a cash cow, driven by demand for popular models such as the F-150, Maverick, Bronco Sport, and Escape. To avoid over-dependence on the North American market, the company has been working on redesigning businesses globally. While the South American business has already become profitable, European business is expected to record a 6% EBIT margin by 2023. Ford's Lincoln portfolio is also making a mark in the Chinese market.
Meanwhile, Ford is becoming a prominent electric vehicle (EV) player. The company expects EVs to account for at least 40% of its product mix by 2030. This target seems achievable, considering the company is already seeing impressive early signs of demand for its first-generation EVs like the Mustang Mach-E, the E-Transit, and the F-150 Lightning. The company expects to make its second-generation EVs even more cost-efficient and margin-accretive.
While Mustang Mach-E is already profitable, Ford has identified an additional $1,000 worth of savings opportunity per vehicle. The company is also gearing to benefit from the first-mover advantage in the mass-produced fully electric pickup truck market with the F-150 Lightning. Ford now expects its annual EV production capacity to reach 600,000 by 2023.
Ford is a cash-rich company, which is of utmost importance in an inflationary environment. At the end of the fourth quarter, the company's total cash and liquidity were $36 billion and $52 billion, respectively. The company expects adjusted free cash flow (FCF) of $5.5 billion to $6.5 billion and dividend payouts of $1.5 billion to $1.6 billion in 2022. Hence, the company's cash pile is expected to continue growing in the coming year, meaning Ford is mostly self-sufficient when it comes to funding billions of dollars worth of investment into its EV business over the coming decade.
Against the backdrop of the solid core business, focused investments in the electrification strategy, and impressive balance sheet strength, Ford is well poised to emerge as a winning stock in the coming months.
2. ironSource
Headquartered in Tel Aviv, Israel, mobile ad tech company ironSource (IS) offers a software solution suite, Sonic, that helps mobile content creators effectively monetize their apps. Sonic is mostly focused on enabling the discovery, downloading, and monetization of mobile games -- a global market estimated to be worth $124.9 billion in 2022.
ironSource also offers another software solution suite, Aura, that allows telecom operators to install content at setup or over the lifecycle of a phone. ironSource went public in June 2021, merging with a special purpose acquisition company (SPAC).
ironSource boasts an impressive client list comprised of app developers, such as Aristocrat, Activision Blizzard, and Gameloft, as well as telecom operators like Vodafone, Samsung, and Orange S.A. The company has a sticky customer base, as apparent by its pretty high fourth-quarter 2021 (ended Dec. 31) dollar-based net expansion rate of 154%.
The company's platform was also used by 88 of the top 100 mobile games in the U.S. and every major game developer during the fourth quarter. ironSource is also focused on penetrating even more into the ecosystem of app-based businesses through recent acquisitions, such as those of Soomla, Bidalgo, Luna, and Tapjoy.
In fiscal 2021, ironSource's revenue soared by 67% year over year to $553 million, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was up 87% year over year to $194 million. The company also has a robust balance sheet and ended fiscal 2021 with a net cash position of $782 million -- a big plus in an inflationary environment. Riding a solid secular growth opportunity and with robust financials, the stock seems to be an attractive pick this month.
