The stock market ended January on a solid note, with the tech-heavy Nasdaq Composite index gaining 10.7% last month, marking its best monthly performance since July. In addition, the recent Gross Domestic Product (GDP) data indicates stable economic growth driven by consumer spending, which has uplifted investors’ optimism that the Fed could ease off on its rate hikes in the future.
Additionally, the Federal Reserve raised its benchmark interest rate by 25 basis points on account of cooling inflation data. Although inflation has eased for the past six months, the Fed aims to fully root out price increases throughout the economy and achieve its target 2% level.
Fed Chairman Jerome Powell said, “While recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.”
However, cooling inflation has boosted investor sentiment and reduced the odds of a recession. Market experts are now becoming increasingly confident that the economy might succeed in avoiding a recession.
Given improving market sentiments, it could be ideal for investors to buy fundamentally strong Nasdaq stocks PepsiCo, Inc. (PEP) and Comcast Corporation (CMCSA) now.
PepsiCo, Inc. (PEP)
PEP is a global food and beverage giant with a broad portfolio of soft drinks. The company’s segments include Frito-Lay North America; Quaker Foods North America; and PepsiCo Beverages North America. Its product offerings also include branded dips, cheese-flavored snacks, tortillas, and dairy products.
On February 1, 2023, the company increased its quarterly dividend by 7% from the prior-year value to $1.15 per share, payable on March 31, 2023. PEP has a record of increasing annual dividends for 50 consecutive years. This reflects its strong cash flows.
PEP’s four-year average dividend yield is 2.77%, and its forward annual dividend of $4.60 translates to a 2.68% yield on the current price level. Its dividend has grown at a 6.1% CAGR over the past three years and a 7.4% CAGR over the past five years.
On December 5, 2022, PEP announced a new packaging goal to double down the scale of reusable packing models from 10% to 20% by 2030. This ambition is driven by disruptive innovation that aligns perfectly with the company’s sustainable packaging vision.
PEP’s net revenue increased 8.8% year-over-year to $21.97 billion for the third quarter that ended September 3, 2022. The company’s gross profit increased 8% year-over-year to $11.66 billion, while its non-GAAP operating profit rose 10.9% from the year-ago value to $3.59 billion.
In addition, its non-GAAP net income increased 10.1% year-over-year to $2.73 billion. Also, its non-GAAP EPS came in at $1.97, up 10.1% year-over-year.
The consensus EPS estimate of $1.65 for the fourth quarter (ended December 31, 2022) represents a 7.8% improvement year-over-year. The consensus revenue estimate of $26.82 billion for the last quarter indicates a 6.2% increase from the prior-year period. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained marginally to close the last trading session at $169.97.
PEP’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 an A grade for Quality and a B for Growth, Stability, and Sentiment. Out of 37 stocks in the A-rated Beverages industry, it is ranked #6. Click here to see the other ratings of PEP for Value and Momentum.
Comcast Corporation (CMCSA)
CMCSA is a global media and technology company operating through five segments: Cable Communications; Media, Studios; Theme Parks; and Sky.
On January 26, 2023, the company increased its dividend by $0.08 to $1.16 per share on an annualized basis, up 7.4% year-over-year. In accordance with the increase, the Board of Directors declared a quarterly cash dividend of $0.29 a share on the company’s common stock, payable on April 26, 2023, to its shareholders.
CMCSA’s four-year average dividend yield is 2.10%, and its current dividend of $1.16 translates to a 2.82% yield on the current price level. Its dividends have grown at an 8.7% CAGR over the past three years and an 11.4% CAGR over the past five years.
On December 12, 2022, CMCSA launched the world’s first live, multigigabit symmetrical internet connection powered by 10G and Full Duplex DOCSIS 4.0. 10G technology. This technology promises to offer customers next-level net speed and performance and is expected to significantly boost CMCSA’s product portfolio.
On the same day, the company announced that it had exceeded its goal of launching 1,250 Lift Zones in 2022. The Lift Zones program provides free WiFi access in neighborhood community centers nationwide.
For the fiscal year 2022 that ended on December 31, 2022, CMCSA’s revenues increased 4.3% from the prior year to $121.43 million. The company’s adjusted net income grew 7.3% year-over-year to 16.15 million, while its adjusted EBITDA amounted to $3.02 billion, up 5% from the year-ago value. Also, its adjusted EPS increased 12.7% year-over-year to $3.64.
CMCSA’s EPS and revenue are expected to increase 11.7% and 2.9% year-over-year to $4.07 and $123.70 billion, respectively, in the fiscal year 2024 (ending December 2024). The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Shares of CMCSA have gained 33% over the past three months to close the last trading session at $41.11.
CMCSA’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It also has a B grade for Quality. Of the nine stocks in the Entertainment - TV & Internet Providers industry, it is ranked first. To see the other ratings of CMCSA for Growth, Value, Momentum, Stability, and Sentiment, click here.
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PEP shares were trading at $168.63 per share on Friday afternoon, down $1.34 (-0.79%). Year-to-date, PEP has declined -6.66%, versus a 8.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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