The unemployment rate dropped to 3.5% in September as employers hired more workers than expected. A tight labor market might keep the Federal Reserve on its monetary policy tightening campaign for a while.
New York Federal Reserve President John Williams said that the U.S. central bank has more work to do to lower inflation and rebalance economic activity in a more sustainable way. Williams said the U.S. economy has “a very strong labor market, which is a good thing except for very high inflation,” and hence its being countered by central bank rate rises.
Moreover, ahead of the release of the latest consumer price index reading this week, Allianz Chief Economic Adviser Mohamed El-Erian predicted headline inflation would probably come down to about 8%, but that core inflation is still going up, and increase in core inflation means the inflation issue still exists.
Given the uncertainties, fundamentally strong stock Microsoft Corporation (MSFT) might be a solid buy now. However, Advanced Micro Devices, Inc. (AMD) could be best avoided considering its bleak fundamentals.
Stock to Buy:
Microsoft Corporation (MSFT)
MSFT is a tech giant that develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.
On September 22, MSFT announced its plan, along with Planet Labs PBC and The Nature Conservancy, to launch the Global Renewables Watch (GRW), a living atlas intended to map and measure all utility-scale solar and wind installations. The first full global inventory is expected to be completed by early 2023.
On September 20, MSFT declared a quarterly dividend of $0.68 per share, reflecting a 10% increase over the previous quarter’s dividend. The dividend is payable to shareholders on December 8. This reflects the cash generation ability of the company.
MSFT’s total revenue increased 12.4% year-over-year to $51.87 billion in the fourth quarter that ended June 30. Its net cash from operations grew 8.5% from the year-ago value to $24.63 billion, while its net income improved 1.7% year-over-year to $16.74 billion. The company’s net earnings per common share increased 2.8% from its year-ago value to $2.23.
The consensus EPS estimate of $10.17 for the fiscal year ending June 2023 indicates a 10.4% improvement year-over-year. Revenue is expected to rise 11% year-over-year to $220.08 billion for the same year. Additionally, MSFT has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has declined 2.7% over the past five days to close its last trading session at $234.24.
MSFT’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MSFT is rated a B in Stability and Quality. Within the Software – Business industry, it is ranked #9 out of 51 stocks.
To see additional POWR Ratings for Value, Growth, Momentum, and Sentiment for MSFT, click here.
Stock to Avoid:
Advanced Micro Devices, Inc. (AMD)
AMD operates as a global semiconductor company in two segments: Computing and Graphics; and Enterprise, Embedded, and Semi-Custom. It serves original equipment manufacturers, public cloud service providers, original design manufacturers, independent distributors, online retailers, and add-in-board manufacturers.
Earlier in September, it was reported that AMD had received instructions from U.S. Officials to stop exporting its artificial intelligence chips to China. Although the company said it does not believe the new rules will have a material impact on its business, the restriction might impact its overall sales.
AMD’s operating expenses increased 150.8% year-over-year to $2.51 billion for the fiscal second quarter ended June 25. Its operating income amounted to $526 million, showing a decline of 36.7% year-over-year, while its net income declined 37% year-over-year to $447 million. The company’s EPS decreased 53.4% year-over-year to $0.27 for the same period.
Street expects AMD’s EPS to decline 19.2% year-over-year to $0.91 for the fiscal first quarter ending March 2023.
The stock has declined 59.4% year-to-date to close the last trading session at $58.44. The stock has fallen 31.6% over the past month.
AMD’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which equates to a Sell in our proprietary rating system.
The stock has a D grade for Stability. AMD is ranked #86 out of the 92 stocks in the Semiconductor & Wireless Chip industry.
In addition to the POWR Rating grades stated above, one can see AMD’s ratings for Value, Growth, Momentum, Sentiment, and Quality here.
MSFT shares were trading at $230.03 per share on Monday afternoon, down $4.21 (-1.80%). Year-to-date, MSFT has declined -31.16%, versus a -23.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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