The stock market might be in a correction right now, but not every stock suffered over the past quarter. Some companies reported excellent results and produced big returns for shareholders.
Investors are desperate for winners right now, so any stock with positive momentum is likely to attract interest. These three stocks led the market last quarter, but it's important to make sure that it's not too late to climb on board.
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1. Lantheus Holdings
Lantheus Holdings (LNTH -2.15%) is a medical diagnostic imaging company that's been delivering outstanding operating results. Its revenue increased 125% to $209 million for the quarter. That marked a big acceleration from 37.6% growth in the prior quarter, which was also way above Wall Street's expectations. The gains were driven by a huge increase in sales of its product PYLARIFY, an injectable used to detect prostate cancer. Lantheus drastically increased its full-year guidance based on the new developments.
The company followed up those stellar results by announcing the start of phase 2 clinical trials for another product that's used in lung cancer detection. Over the past quarter, Lantheus has made excellent progress toward its goal of building a diversified, high-growth portfolio of products. That's exactly what will lead to large cash flows in the future, and this should translate to higher share prices.
All of that is fine, but investors need to make sure the huge gains haven't erased the stock's opportunity to deliver returns. Even though Lantheus stock has nearly doubled in value, it still has reasonable valuation ratios. Its forward PE is 31, and its $4.1 billion market cap is only 5.7 times the $700 million in sales that the company expects to achieve this year.
To justify its stock price, Lantheus will have to continue pushing growth with PYLARIFY while expanding its product portfolio. Investors shouldn't expect Lantheus to repeat these returns over the next few quarters, but there's certainly room for long-term gains if it continues to execute.
2. Occidental Petroleum
Occidental Petroleum (OXY -1.14%) is a global energy company with oil and gas production, refining, midstream, and marketing operations. Like many other energy stocks, the company's results and share price both surged over the past quarter as oil prices rose. Energy prices were driven higher by inflation, supply chain disruptions, and the conflict in Russia.
Occidental sells oil and natural gas, so it obviously benefits from higher prices of those commodities. Large energy companies tend to be highly sensitive to pricing relative to other industries. Their expense structures have high fixed costs in the form of machinery and labor, so they can't be profitable unless the market price for oil is above a certain level. However, their profits rapidly increase as energy prices get higher above the break-even level.
This is even further exaggerated by high financial leverage, which is common for Occidental and its peers. Occidental Petroleum has more than $35 billion in debt, leading to a debt-to-equity ratio around 2. That results in large fixed cash outflows for interest and debt repayment every quarter.
Oil companies are on the right side of this issue right now, with oil prices at their highest level since 2014. Occidental took advantage of the situation by increasing sales nearly 40% last quarter. That led to $4.8 billion in net income and $3.2 billion in free cash flow, more than double than one year ago. Occidental also paid off $3.3 billion in debt. The company is clearly thriving in the current environment.
Occidental Petroleum's future prospects depend entirely on future oil prices. If energy prices remain elevated, the stock looks attractive at its current 6 enterprise-value-to-EBITDA and 4.8 price-to-cash flow ratios. However, if crude oil drops back to the levels we've seen in recent years, the stock is probably going to fall with it.
3. Veritiv
Veritiv (VRTV) is a diversified company with operations in packaging, sanitation, paper and printing products, and logistics services. Its customers include more than half of the Fortune 500. The stock is up 51% over the past three months after the company delivered some excellent operating results. Sales were up nearly 20% in the first quarter, and the company also increased its profit margins.
Veritiv achieved excellent results across all of its business units. It attributed that success to its expertise in supply chain management, which is helping it compete in a challenging global economic environment. This is the exact type of story that excites investors during difficult markets.
Despite the recent gains, Vertiv's forward P/E ratio is still only 25. The company also forecasts free cash flow that's only slightly lower than net income for the full year.
The company probably won't sustain this growth rate over the medium term. Competition and market saturation make it difficult for diversified businesses in mature industries to grow quickly. That said, Veritiv looks like a nice cash flow machine that can outpace the wider economy for the foreseeable future. There are certainly cheaper value stocks that fit that description right now, but that doesn't necessarily make Veritiv a bad buy.