Despite the Fed’s extraordinary efforts, the sky-rocketing inflation shows no signs of slowing down. Moreover, with hotter-than-expected CPI data in August, the Fed increased interest rates by 75 basis points for the third consecutive time today. The consecutive rate hikes are raising the odds of a recession.
According to the World Bank, the global core inflation rate, excluding energy, could stay at about 5% in 2023, and even a moderate hit to the global economy over the next year could tip it into a recession. “Global growth is slowing sharply, with further slowing likely as more countries fall into recession,” World Bank President David Malpass said.
However, BofA analysts have pointed out that the markets typically rebound after a September slump, and the stocks could see a rally later this year and into 2023.
Amid such uncertainties, it could be wise to add no-brainer stocks Microsoft Corporation (MSFT), Merck & Co., Inc. (MRK), and APA Corporation (APA) to one’s portfolios, given their strong fundamentals.
Microsoft Corporation (MSFT)
MSFT is a tech leader 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 20, MSFT announced a quarterly dividend of $0.68 per share, reflecting a 10% increase from the previous quarter's dividend. The dividend is payable on December 8, 2022. This demonstrates the company’s strong cash flow positioning.
On August 9, MSFT and Barclays PLC (BCS) announced that BCS had deployed Microsoft Teams as its preferred collaboration platform. This plan included enhancing the data retention, search, and retrieval capabilities available with MSFT to meet BCS’ needs. This demonstrates MSFT’s growing Teams market.
MSFT’s total revenue increased 12.4% year-over-year to $51.87 billion in the fourth quarter 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 EPS increased 2.8% from its year-ago value to $2.23.
The consensus EPS estimate of $2.32 for the first fiscal quarter ending September 2022 indicates a 2.3% improvement year-over-year. The consensus revenue is expected to rise 10.1% year-over-year to $49.89 billion for the same quarter. Additionally, MSFT has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has slumped marginally intraday to close its last trading session at $242.45.
MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, 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 also rated B in Stability, Sentiment, and Quality. Within the Software – Business industry, it is ranked #8 out of 54 stocks. To see additional POWR Ratings for Growth, Value, and Momentum for MSFT, click here.
Merck & Co., Inc. (MRK)
Merck & Co., Inc. is a global healthcare company that operates in two segments Pharmaceutical and Animal Health. It has collaborations with AstraZeneca PLC, Bayer AG, Eisai Co., Ltd., Ridgeback Biotherapeutics, and Gilead Sciences, Inc. to develop and commercialize long-term HIV treatments jointly.
On September 20, the company announced the initiation of a new Phase 3 clinical program with once-daily islatravir for treating people with HIV-1 infection.
In the same month, it also announced that Health Canada approved KEYTRUDA (pembrolizumab), an anti-PD-1 therapy, for the adjuvant treatment of adult and pediatric patients with stage IIB or IIC melanoma following complete resection. This should enhance the company’s revenue streams upon commercialization.
For the second quarter ended June 30, 2022, MRK’s net revenue grew 28% year-over-year to $14.59 billion. The company’s non-GAAP net income increased 204.2% from the prior quarter to $4.74 billion, while its non-GAAP EPS amounted to $1.87.
Street expects its EPS to grow 22.7% year-over-year to $7.38 in the ongoing fiscal year. In addition, its revenue is expected to grow 20.4% from the prior-year quarter to $58.62 billion in the same period. MRK also has an impressive earnings surprise history as it beat Street EPS estimates in three of the trailing four quarters.
The company’s shares have gained 19.6% over the past year and 12.2% year-to-date to close the last trading session at $86.
It is no surprise that MRK has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Growth, Value, Quality, and Sentiment. Out of the 165 stocks in the Medical - Pharmaceuticals industry, MRK is ranked #2.
In addition to the POWR Rating grades I have just highlighted, you can see the MRK ratings for Momentum and Stability here.
APA Corporation (APA)
APA, through its subsidiaries, explores, develops, and produces oil and gas properties in the United States, Egypt, and the United Kingdom. The company also operates gathering, processing, and transmission assets in West Texas, as well as holds ownership of four Permian-to-Gulf Coast pipelines.
On August 23, APA announced an oil discovery offshore Suriname at Baja-1 in Block 53, which was drilled to a depth of 5,290 meters and encountered 34 meters of net oil pay in a single interval within the Campanian. “This result confirms our geologic model for the Campanian in the area and helps to de-risk other prospects in the southern portion of both Blocks 53 and 58,” said John J. Christmann, APA CEO, and president.
For the fiscal second quarter ended June 30, 2022, APA’s total revenues came in at $3.05 billion, up 71.3% year-over-year. Net income attributable to APA increased 193% year-over-year to $926 million. Moreover, its net income per share increased 230.5% year-over-year to $2.71.
Analysts expect APA’s revenue to increase 55.5% year-over-year to $2.57 billion in the current quarter ending September 2022. Its EPS is estimated to increase 136.7% year-over-year to $2.32 in the same period. The company also beat the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 109.4% over the past year to close the last trading session at $39.60.
APA’s strong fundamentals are reflected in its POWR Ratings. It has an overall B grade, equating to a Buy in our POWR Ratings system. The stock has an A grade for Momentum and Quality and a B for Growth and Value. It is ranked #9 of 95 stocks in the B-rated Energy - Oil & Gas industry.
Click here to learn the additional POWR Ratings for Stability and Sentiment for APA.
MSFT shares were trading at $245.75 per share on Wednesday afternoon, up $3.30 (+1.36%). Year-to-date, MSFT has declined -26.45%, versus a -17.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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