The stock market has been battling macroeconomic and geopolitical concerns since the beginning of the year. The S&P 500 is down 22.8% year-to-date. The index fell 9.3% in September, closing its worst month since March 2020.
Inflation has been a major Achilles heel for the economy, with the Fed’s aggressive interest rate hikes yielding little to no results in bringing it down from its elevated levels. In August, the Consumer Price Index (CPI) rose 8.3% year-over-year, beating analysts’ estimates. This prompted the Fed to announce the third consecutive 75 basis point rate increase in September.
The rate increase and the Fed’s upward revision of the key rate for this year have severely dented investor sentiment. With the central bank expected to raise rates aggressively in the upcoming months, the odds of a recession by the start of next year are high. This is expected to keep the stock market under pressure.
Given this backdrop, investors may consider investing in non-cyclical stock The Kroger Co. (KR), given the inelastic demand for its products and strong fundamentals. On the other hand, investors must avoid Advanced Micro Devices, Inc. (AMD), given its poor fundamentals and the tech industry’s bleak near-term prospects.
Stock to Buy:
The Kroger Co. (KR)
KR is a food retailing company that owns and operates supermarkets, multi-department stores, and fulfillment centers. The company manufactures and processes some food for sale in its supermarkets.
The company also owns store equipment, fixtures, leasehold improvements, and processing and food production equipment. It offers online personalized orders, pick-up at the store, and home delivery services.
KR’s sales increased 9.3% year-over-year to $34.63 billion for the second quarter that ended August 13, 2022. The company’s operating profit increased 13.7% year-over-year to $954 million. Also, its net earnings increased 56.5% year-over-year to $731 million. In addition, its EPS came in at $1, representing an increase of 63.9% year-over-year.
Analysts expect KR’s EPS and revenue for the quarter ending October 31, 2022, to increase 3.2% and 6.9% year-over-year to $0.80 and $34.06 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 11.8%.
KR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Value, and Quality. It is ranked #6 out of 38 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the other ratings of KR for Momentum, Stability, and Sentiment.
Stock to Avoid:
Advanced Micro Devices, Inc. (AMD)
AMD is a global semiconductor company. Its segments include Computing and Graphics and Enterprise, Embedded, and Semi-Custom. The Computing and Graphics segment includes desktop and notebook microprocessors, accelerated processing units, chipsets, GPUs, data centers, etc. The Enterprise, Embedded, and Semi-Custom segment includes server and embedded processors, semi-custom system-on-chip (SoC) products, etc.
AMD’s operating income declined 36.7% year-over-year to $526 million for the second quarter that ended June 25, 2022. Its net income fell 37% year-over-year to $447 million. Also, its EPS came in at $0.27, down 53.4% year-over-year. In addition, its gross margin came in at 46%, compared to 48% in the year-ago quarter.
Analysts expect AMD’s EPS for the quarter ending March 31, 2023, to decline 4.5% year-over-year to $1.08. The stock has declined 54.1% year-to-date.
AMD’s POWR Ratings reflect this bleak outlook. It has an overall rating of D, which translates to a Sell in our proprietary rating system.
It has a D grade for Stability. It is ranked #83 out of 92 stocks in the Semiconductor & Wireless Chip industry. Click here to see the other ratings of AMD for Growth, Value, Momentum, Sentiment, and Quality.
AMD shares rose $2.09 (+3.16%) in premarket trading Tuesday. Year-to-date, AMD has declined -54.06%, versus a -21.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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