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3 Red-Hot Stocks That Could Continue to Beat the Market

With the Dow Jones Composite average down more than 9% and the Nasdaq Composite down more than 25% this year, it's good to know that not all stocks are suffering. Williams Companies (NYSE: WMB), Meridian Bioscience (NASDAQ: VIVO), and ConocoPhillips (NYSE: COP) are all up 20% or more this year.

All three stocks are benefiting from significant tailwinds that should last awhile. That momentum is in turn attracting more investors who are looking for a safe harbor amid a turbulent market. The companies are all coming off strong quarterly reports, and two of them offer respectable dividends.

An engineer checks on a gas pipeline.

Image source: Getty Images.

1. Williams Companies: A pipeline to prosperity

Williams Companies shares are up more than 33% this year. The business owns and operates energy infrastructure, primarily natural gas pipelines. Because it delivers natural gas instead of producing it, Williams is less reliant on oil and gas prices than it is on the demand for natural gas, and that is expected to remain high for the next few decades.

In its 2021 report, the International Energy Agency projected global demand for natural gas is expected to increase by 31% by 2040. Williams has long-term contracts, which give it predictable cash flow.

What's impressive about Williams is its growth in earnings before interest, taxes, depreciation, and amortization (EBITDA), which have increased by 137% over the past 10 years. The company raised its dividend this year by 3.7% to $0.425 per share, giving it a yield of 4.76% as of Monday's share price. This is the sixth consecutive year the company has increased its dividend.

Williams is coming off a strong first-quarter report, with increased financials and upgraded guidance. Adjusted EBITDA was $1.51 billion, up 7% year over year; adjusted net income was $0.41 per share, up 17% over the same period in 2021; and funds from operations were $1.19 billion, up 16% year over year.

The company said it now expects 2022 adjusted EBITDA between $5.9 billion and $6.2 billion, a boost at the midpoint of nearly $250 million from earlier guidance. It also increased its forecast for adjusted net income to a range of $1.8 billion to $2 billion, up from a range of $1.57 billion to $1.87 billion.

Its new forecast for the year on adjusted earnings per share (EPS) ranges from $1.47 to $1.64, up from $1.29 to $1.54. The guidance for available funds from operations per share also rose to a range of $3.64 to $3.89, up from $3.40 to $3.73.

2. Meridian Bioscience: Ready for any test

Meridian Bioscience has seen its shares rise more than 20% so far this year. The company operates in two areas. Its diagnostics segment makes infectious disease and blood-chemistry products used for lab tests. The life science segment sells bulk antigens, PCR (polymerase chain reaction) reagents, antibodies, and other reagents used by researchers and diagnostic manufacturers.

The company's business has been helped by the demand for its reagents for COVID-19 testing, but Meridian's rise began long before the pandemic with seven consecutive years of increased annual revenue.

The company just gave its second-quarter (period ended March 31) report and said it had record revenue of $111.2 million in the quarter, up 30.5% year over year as both segments did well. Life science generated record revenue of $70.1 million, up 32% over the same period in 2021, and diagnostics reported revenue of $41.1 million, up 29% year over year. The company's EPS was $0.65 in the quarter, up from $0.60 in the second quarter of 2021.

Like Williams, Meridian issued increased guidance. It did so even though it expects its life science segment will see lower revenue toward the end of the year as the demand for its reagents for COVID will likely decline.

The company said it expects full-year 2022 revenue between $330 million and $345 million, up from earlier estimates of between $315 million and $330 million. Meridian added that it expects full-year adjusted EPS of $1.30 to $1.40, up from $1.10 to $1.30.

3. ConocoPhillips: Riding a pricing surge

ConocoPhillips' shares are up more than 40% this year. The oil and natural gas producer's coffers have been buoyed because sanctions on Russian oil and gas imports have tightened global supplies, raising the price of oil above $100 a barrel and the cost of natural gas above $8.

In the first quarter, Conoco reported earnings of $5.8 billion and EPS of $4.39, up from $1 billion and $0.75 EPS in the same quarter last year. The company also said it had $7 billion in cash from operations, up from $2.1 billion in the first quarter of 2021. In the company's first-quarter earnings call, chief financial officer Bill Bullock said it increased oil production to a company-record of 1.75 million barrels of oil equivalent per day.

Things are going so well, Conoco has done stock buybacks, paid down a $1.3 billion note, and given investors special dividends. Its current dividend yield is 2.35%, but that will rise as it just announced a regular quarterly dividend of $0.46 per share, up from $0.30 in the prior quarter, along with a third-quarter special dividend of $0.70 a share.

COP Chart

COP data by YCharts. TTM = trailing 12 months.

Taking a long view

I believe all three companies will likely continue their strong run if for no other reason than so many other stocks are doing poorly that these companies have become more attractive.

Despite their share gains, none of these stocks are overpriced, with a price-to-earnings ratio of 10.4 for Conoco, 17.1 for Meridian, and 29.2 for Williams -- all below industry standards in their respective sectors.

Williams Companies and ConocoPhillips are benefiting from international supply shortages in oil and gas, and while I expect that to continue, it's worth noting that the oil and gas industry, in general, is highly volatile. Of the two, I think Williams is less likely to see as much short-term growth as ConocoPhillips, but its business model also means there's less risk in the long term.

Meridian has benefited from the need for its reagents for COVID testing, and its business has shown the most EBITDA growth of the three companies over the past three years.

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Jim Halley has positions in Meridian Bioscience and Williams Companies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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