The recent labor-market statistics have revealed a decline of 19,000 in the number of jobless claims during the holiday week, thereby stroking back to life the Street’s fear of an economic slowdown.
However, the resumption of tech layoffs, which began in the middle of last year, with recent announcements from Salesforce (CRM) and Amazon (AMZN), suggests that the much-feared economic slowdown might already be here. CRM co-CEO Marc Benioff wrote in a letter to employees, "The environment remains challenging and our customers are taking a more measured approach to their purchasing decisions."
Regardless of (also due to) the general doom and gloom, it would be wise to load up on shares of fundamentally strong businesses available at fair prices and well-positioned to weather a potential economic downturn with their growth and profitability relatively undented.
To that end, AbbVie Inc. (ABBV), Broadcom Inc. (AVGO), and Verizon Communications Inc. (VZ) appear to be appropriate investments now.
AbbVie Inc. (ABBV)
ABBV is a biopharmaceutical company engaged in the research, development, manufacturing, commercialization, and sale of medicines and therapies worldwide. The company’s products are segmented into seven categories: Immunology; Oncology; Anaesthetics; Neuroscience; Eyecare; Women’s Health; and Others.
On December 16, ABBV announced that the U.S. Food and Drug Administration (FDA) approved VRAYLAR® (cariprazine) as an adjunctive therapy to antidepressants for the treatment of major depressive disorder (MDD) in adults. It has been supported by clinical data demonstrating efficacy and well-established tolerability and provides a new option for adults who have a partial response to the treatment of an antidepressant.
On December 6, ABBV and HotSpot Therapeutics, Inc. announced an exclusive worldwide collaboration and option to license agreement for HotSpot’s discovery-stage IRF5 program for treating autoimmune diseases.
The company expects this collaboration to deliver a new target class of modulators to patients with severe autoimmune diseases, strengthening its robust immunology pipeline.
ABBV’s worldwide net revenues increased 3.3% year-over-year to $14.81 billion in the third quarter that ended September 30, 2022. During the same period, the company’s adjusted net earnings increased 29.1% from the year-ago value to $6.53 billion, while its adjusted EPS rose 29.3% from the prior-year quarter to $3.66.
ABBV’s trailing-12-month gross profit margin of 69.8% is 26.4% higher than the industry average of 55.2%. The company’s trailing-12-month EBITDA and net income margins of 51.54% and 23.19% also compare favorably to the industry averages of 3.73% and negative 5.94%, respectively.
Analysts expect ABBV’s revenue and EPS for the fiscal ended December 2022 to increase 3.9% and 9.1% year-over-year to $58.30 billion and $13.85, respectively. Moreover, the company beat Street EPS estimates in each of the trailing four quarters.
The stock has gained 6.2% over the past six months and 20.3% over the past year to close the last trading session at $163.49. It is trading above its 50-day and 200-day moving averages of $157.11 and $150.47. Despite the uptrend, it is still priced at 11.82 times its forward non-GAAP earnings, 39.5% lower than the industry average of 19.55x, thereby signaling further upside potential.
ABBV’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which translates 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.
ABBV also has an A grade for Quality and a B for Growth. It is ranked #6 of 164 stocks in the Medical – Pharmaceuticals industry.
Click here to see the additional POWR Ratings of ABBV for Value, Momentum, Sentiment, and Stability.
Broadcom Inc. (AVGO)
AVGO develops and supplies various semiconductor devices worldwide. The company operates in two segments: Semiconductor Solutions; and Infrastructure Software.
AVGO’s offerings include set-top box system-on-chips (SoCs), ethernet switching and routing merchant silicon products, fiber optic transmitter and receiver components, internet protocol (IP) licensing, radio frequency (RF) semiconductor devices, custom touch controllers, and connectivity solutions.
On September 30, AVGO’s 8.00% Mandatory Convertible Preferred Stock, Series A, automatically got converted into shares of the company’s common stock as per the agreed conversion rate. In addition to the conversion, holders of preferred shares at the close of business on September 15, 2022, received a final quarterly cash dividend of $20.00 per share.
For the fiscal 2022 fourth quarter ended October 30, 2022, AVGO’s net revenues increased 20.6% year-over-year to $8.93 billion. During the same period, the company’s non-GAAP operating income and non-GAAP EBITDA increased 5.8% and 25.8% year-over-year to $5.50 billion and $5.72 billion, respectively.
Consequently, AVGO’s non-GAAP net income for the quarter came in at $4.54 billion, up 29.8% from the previous-year quarter. Also, its non-GAAP EPS came in at $10.45, up 33.8% year-over-year.
AVGO’s trailing-12-month gross profit margin of 75.1% is 51.7% higher than the industry average of 49.5%. The company’s trailing-12-month EBITDA and net income margins of 58.04% and 34.62% also compare favorably to the industry averages of 11.74% and 3.25%, respectively.
For the fiscal year 2023, analysts expect AVGO’s revenue and EPS to increase 5.9% and 8.6% year-over-year to $35.17 billion and $40.86, respectively. The company has also impressed by surpassing EPS estimates in each of the trailing four quarters.
The stock has gained 3.7% over the past month and 16.5% over the past six months to close the last trading session at $555.02, above its 50-day and 200-day moving averages of $521.79 and $528.76, respectively. Despite the uptrend, it is still priced at 13.7 times its forward non-GAAP earnings, 26% lower than the industry average of 18.51x, thereby signaling further upside potential.
AVGO’s overall B rating translates to a Buy in our POWR Ratings system. It also has an A grade for Quality and a B for Sentiment.
AVGO is ranked #11 of 93 stocks in the B-rated Semiconductor & Wireless Chip industry.
Click here for the additional POWR Ratings for Growth, Value, Momentum, and Stability for AVGO.
Verizon Communications Inc. (VZ)
VZ offers communication, information, and entertainment products and services to consumers, businesses, and governmental agencies. The company provides wireless and wireline communications services and products in the United States through Consumer Group and Business Group segments.
On December 1, VZ declared its quarterly dividend of $0.65 per share, payable to shareholders on February 1, 2023. The company pays $2.61 annually as dividends, which translates to a yield of 6.35% at the current price, better than the 4-year average dividend yield of 4.67%. Dividend payouts have grown for 18 consecutive years.
On November 30, VZ announced its partnership with Wipro Limited (WIT) to accelerate the network modernization and cloud transformation journey for businesses. This will enable VZ to help WIT transition its customers from legacy cycles of deploying hardware, applications, and services to an automated, self-healing, and highly secure network service environment.
On October 5, VZ bagged a new Enterprise Infrastructure Solutions (EIS) contract, worth $1.58 billion over the next ten years, to modernize the global communications infrastructure and provide IT services for each of the Department of State’s (DOS) U.S. embassies, consulates, and other key locations totaling to around 260 around the globe.
During the third quarter of the fiscal year 2022 ended September 30, VZ’s total operating revenues grew 4% year-over-year to $34.2 billion. Wireless service revenue growth and higher wireless equipment revenue more than offset wireline declines and the net impact of merger and acquisition (M&A) activity in 2021.
During the same period, VZ’s adjusted EBITDA and net income came in at $12.2 billion and $5 billion, respectively. As a result, the company’s adjusted quarterly EPS came in at $1.32.
VZ’s trailing-12-month gross profit margin of 57% is 13.2% higher than the industry average of 49.5%. The company’s trailing-12-month EBITDA and net income margins of 32.02% and 14.22% also compare favorably to the industry averages of 19.05% and 4.51%, respectively.
For the fiscal fourth quarter ended December 31, 2022, VZ’s revenue is expected to come in at $35.30 billion, up 3.6% year-over-year. For the entire fiscal, the company’s revenue is expected to come in at $136.76 billion, registering an increase of 2.4% year-over-year. Moreover, the company has topped the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 10.5% over the past month to close the last trading session at $41.70, above its 50-day moving average of $38.07. Despite the uptrend, it is still priced at 7.93 times its forward non-GAAP earnings, 49.7% lower than the industry average of 15.76x, thereby signaling further upside potential.
VZ’s overall POWR Rating of B equates to a Buy in our proprietary rating system. It also has a grade of B for Growth and Stability.
VZ is ranked #4 of 19 stocks in the Telecom – Domestic industry.
Click here to see the additional ratings of VZ for Value, Momentum, Sentiment, and Quality.
ABBV shares were trading at $166.61 per share on Friday afternoon, up $3.12 (+1.91%). Year-to-date, ABBV has gained 3.09%, versus a 1.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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