With the economy showing signs of multiple headwinds and Q3 corporate earnings disappointing investors, a fresh round of market sell-off is expected in the near term.
Since declines in all major indices might be a sign of beaten-down investor sentiment and further pain ahead, it might be opportune for bargain hunters to buy the dip and back up their truck with fundamentally strong stocks. Such stocks are primed to emerge stronger from the current turbulence while offering their holders steady income streams.
To that end, it could be wise to invest in Microsoft Corporation (MSFT), Centene Corporation (CNC), and Kronos Worldwide, Inc. (KRO).
Microsoft Corporation (MSFT)
As one of the major technology firms in the U.S. and worldwide, MSFT needs no introduction. The company operates in three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.
On October 20, 2022, MSFT and UBS Group AG (UBS) announced a landmark expansion of their partnership to accelerate UBS's public cloud footprint over the next five years. MSFT’s rich set of productivity and collaboration tools would enable UBS to increase the speed at which it can deliver and improve upon its digital experiences for clients and employees.
On October 12, MSFT and Cisco Systems, Inc. (CSCO) announced a new partnership that will provide customers with more choices. In the first half of 2023, CSCO and MSFT will offer the ability to run Microsoft Teams natively on Cisco Room and Desk devices Certified for Microsoft Teams, with Teams as the default experience option. This is expected to broaden the reach of MSFT’s suite of productivity and collaboration tools.
On September 20, 2022, MSFT declared a quarterly dividend of $0.68 per share, reflecting a 10% sequential increase. The dividend is payable on December 8, 2022. MSFT pays $2.72 annually as a dividend, representing a yield of 1.20% at the current price, better than the 4-year average dividend yield is 1.07%. The company’s dividends have grown for 17 consecutive years.
For the first quarter of the fiscal year 2023 ended September 30, MSFT’s total revenue increased 10.6% year-over-year to $50.12 billion, while its operating income grew 6.3% from the year-ago value to $21.52 billion. During the same period, the company’s net income and EPS came in at $17.56 billion and $2.35, respectively.
In terms of forward P/E, MSFT is currently trading at 23.76x, 18.4% lower than its 5-year average of 29.10x. The stock’s forward EV/Sales multiple of 7.99 is 8.4% below its 5-year average of 8.71. Also, its forward Price/Sales multiple of 7.97 compares with its 5-year average of 9.02.
For the fiscal year ending June 2023, analysts expect MSFT’s revenue to come in at $212.28 billion, representing an increase of 7.1% year-over-year, while its EPS is expected to increase 3.6% year-over-year to $9.54. The company has surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
MSFT’s shares have dipped 5.5% over the past month to close the last trading session at $226.75.
MSFT’s POWR Ratings reflect its promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
Also, the stock has grade B for Stability and Quality. Within the Software – Business industry, it is ranked #10 of 53 stocks.
Click here for MSFT’s additional POWR Ratings for Growth, Value, Sentiment, and Momentum.
Centene Corporation (CNC)
CNC provides government-sponsored and commercial healthcare programs focusing on underinsured and uninsured individuals. It also provides education and outreach programs to inform and assist members in accessing appropriate healthcare services. The multi-national healthcare company operates through the Managed Care and Specialty Services segments.
On September 26, CNC announced that its Nebraska subsidiary, Nebraska Total Care, has been awarded the Nebraska Department of Health and Human Services (DHHS) statewide Medicaid managed care contract.
On September 15, CNC announced that a new six-year contract was awarded to Superior by the Texas Health and Human Services Commission (HHSC) to provide children and youth in foster care with healthcare coverage through the STAR Health Medicaid program.
The above developments are expected to impact CNC’s topline positively.
For the third quarter of the fiscal year ended September 30, 2022, CNC’s total revenues increased 11% year-over-year to $35.87 billion, driven by organic Medicaid and Medicare growth. During the same period, the company’s adjusted net earnings increased 1.3% year-over-year to $755 million, resulting in an adjusted EPS of $1.30, up 3.2% year-over-year.
In terms of forward P/E, CNC is currently trading at 14.68x, 21.3% lower than the industry average of 18.64x. The stock’s forward EV/Sales multiple of 0.38 is 90.1% below the industry average of 3.84. Also, its forward Price/Sales multiple of 0.33 compares favorably with the industry average of 4.32.
For fiscal 2022, CNC’s EPS is expected to increase 11.2% year-over-year to $5.73, while its revenue is expected to increase 14.8% year-over-year to $144.56 billion. Moreover, the company has an impressive earning surprise history since it has been surpassing EPS estimates in each of the trailing four quarters.
The stock has gained marginally year-to-date to close the last trading session at $84.07.
CNC’s fundamental strength and promising outlook are reflected in its overall POWR Rating of A, translating to a Strong Buy in our proprietary rating system. It has a grade of B for Value and Quality.
CNC is ranked #5 of 11 stocks in the A – rated Medical – Health Insurance industry.
Click here to see additional ratings of CNC for Growth, Momentum, Sentiment, and Stability.
Kronos Worldwide, Inc. (KRO)
KRO is a global producer and seller of titanium dioxide pigments (TiO2), a base industrial product used for diverse applications. The company sells and provides technical expertise for its products in Europe, North America, and the Asia Pacific region.
On October 26, KRO declared a quarterly dividend of $0.19 per share which would be paid out on December 15. The company pays $0.76 as a dividend annually. This translates to a yield of 8.04% on the current price, above the 4-year average yield of 5.51%.
The current dividend payout ratio is 49.66%. The company’s dividend payouts have grown at 4.6% CAGR over the last five years.
KRO’s net sales increased 18.1% year-over-year to $565.30 million during the second quarter of 2022 ended June 30. The company’s income from operations increased 48.9% from the year-ago value to $65.20 million. Net income came in at $45.90 million, up 78.6% year-over-year. This translated to a net income per share of $0.40, an increase of 81.8% from the previous-year quarter.
In terms of forward P/E, KRO is currently trading at 7.94x, 31.3% lower than the industry average of 11.54x. The stock’s forward EV/Sales multiple of 0.56 is 59.1% below the industry average of 1.37. Also, its forward Price/Sales multiple of 0.53 compares favorably with the industry average of 1.11.
Analysts expect KRO’s revenue for the fiscal year 2022 to increase 6.2% year-over-year to $2.06 billion. The company’s EPS for the same period is expected to increase 21.52% year-over-year to $1.19.
KRO has dipped 4% over the past month to close the last trading session at $9.45.
KRO’s stable prospects have earned it an overall rating of B, which translates to Buy in our POWR Ratings system. It also has an A grade for Value and a B for Quality.
KRO is ranked #19 of 87 stocks in the B-rated Chemicals industry.
Beyond what has been stated above, we have also given KRO grades for Growth, Momentum, Stability, and Sentiment. Get all KRO ratings here.
MSFT shares were trading at $236.09 per share on Friday afternoon, up $9.34 (+4.12%). Year-to-date, MSFT has declined -29.34%, versus a -17.13% 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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