Following the release of the cooling job market report and the bank failures, fears of a recession heightened in the economy. However, I think investing in quality stocks, ServiceNow, Inc. (NOW) and Meritage Homes Corporation (MTH), could be worth now.
U.S. stock indexes clawed back from steep losses to end mixed on Monday as investors digested Friday’s employment report and prepared for an eventful week of inflation data and bank earnings.
March’s jobs report showed robust payrolls growth but modest wage inflation cool-down. Moreover, the unemployment rate dropped to 3.5%.
Additionally, as per the Commerce Department, the Personal Consumption Expenditures (PCE) price index, excluding food and energy, increased by 0.3% for the month, below the 0.4% Dow Jones estimate and lower than the 0.5% January increase. The decline in the personal consumption expenditures price index shows that inflationary pressures are abating.
Furthermore, fears of an imminent recession have reached a fever pitch this year, with everyone from Wall Street market strategists to company CEOs warnings of a slowdown in the US economy.
Economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, recently said that the United States might see more banks and financial institutes go bankrupt, leading to a recession-like situation.
Let’s discuss the stocks mentioned above in detail:
ServiceNow, Inc. (NOW)
NOW provides enterprise cloud computing solutions that defines, structures, consolidates, manages, and automates services for enterprises worldwide.
On March 22, NOW announced a major platform expansion with the Now Platform Utah release, which is built to help organizations future-proof their businesses and drive outcomes faster in the face of continued economic uncertainty.
On February 27, NOW and AT&T Inc. (T) announced a global telecom product to help communications service providers manage 5G and fiber network inventory.
Rohit Batra, vice president and head of telecommunications, media, and technology products at NOW, said, “Together, ServiceNow and AT&T will work to redefine network inventory, and we will continue to innovate to address the challenges communications service providers face now and in the future.”
NOW’s forward non-GAAP PEG multiple of 1.56 is 6.3% lower than the industry average of 1.66. Its 13.44x forward Price/Book is 45.5% lower than its five-year average of 24.65x.
NOW’s trailing-12-month net income margin of 4.49% is 65.7% higher than the 2.71% industry average. Its trailing-12-month EBITDA margin of 10.88% is 15.7% higher than the 9.40% industry average.
During the fiscal fourth quarter that ended December 31, 2022, NOW’s non-GAAP total revenue increased 25.5% year-over-year to $2.03 billion. Its net income increased 476.9% year-over-year to $150 million, whereas its net income per share increased 469.2% year-over-year to $0.74.
NOW’s revenue is expected to increase 21.2% year-over-year to $2.09 billion during the fiscal first quarter that ended March 2023. Its EPS is expected to increase 18.3% year-over-year to $2.05 for the same quarter. Additionally, it has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 24.1% over the past three months to close the last trading session at $472.64.
NOW’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade in Growth and a B in Sentiment and Quality. The stock is ranked #10 in the 51-stock Software - Business industry.
Click here to see the POWR Ratings of NOW (Stability, Momentum, and Value).
Meritage Homes Corporation (MTH)
MTH designs and builds single-family attached and detached homes in the United States. The company operates through two segments, Homebuilding, and Financial Services.
MTH’s forward non-GAAP PEG multiple of 8.97 is 35.3% lower than the industry average of 13.85. Its forward EV/Sales of 0.98x is 9.6% lower than the industry average of 1.08.
MTH’s trailing-12-month EBIT margin of 20.45% is 163.1% higher than the 7.77% industry average. Its trailing-12-month net income margin of 15.77% is 246% higher than the 4.56% industry average.
MTH pays an annual dividend of $1.08. This translates to a yield of 0.94% at the current market price.
MTH’s total closing revenue in the homebuilding segment increased 32.9% year-over-year to $1.99 billion in the fiscal fourth quarter, which ended December 31, 2022. Its adjusted home closing gross profit increased 16.6% year-over-year to $509.67 million, while net earnings increased 10.5% year-over-year to $262.37 million.
Also, its earnings per common share increased 13.4% year-over-year to $7.09.
MTH’s revenue is expected to be $1.03 billion during the fiscal first quarter that ended March 2023. Its EPS is expected to be $2.58 for the same quarter. Additionally, it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 57.6% over the past six months to close the last trading session at $115.23.
MTH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
MTH also has an A grade for Momentum and a B in Sentiment. It is ranked #8 out of 24 stocks in the B-rated Homebuilders industry.
To access additional ratings for MTH’s Growth, Quality, Stability, and Value, click here.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
Yes, some special stocks may go up like the ones discussed in this article. But most will tumble as the bear market claws ever lower this year.
That is why you need to discover the “REVISED: 2023 Stock Market Outlook” that was just created by 40 year investment veteran Steve Reitmeister. There he explains:
- 5 Warnings Signs the Bear Returns Starting Now!
- Banking Crisis Concerns Another Nail in the Coffin
- How Low Will Stocks Go?
- 7 Timely Trades to Profit on the Way Down
- Plan to Bottom Fish For Next Bull Market
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You owe it to yourself to watch this timely presentation before placing your next trade.
REVISED: 2023 Stock Market Outlook >
NOW shares were trading at $470.07 per share on Tuesday morning, down $2.57 (-0.54%). Year-to-date, NOW has gained 21.07%, versus a 7.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
2 Stocks to BUY Now and WATCH Later StockNews.com
