The Fed looks all set to raise interest rates by 75 basis points again on Wednesday. While a fourth-straight rate hike at this pace could push the economy into a recession, a slowdown of the pace of rate hikes later this year is widely expected by analysts.
On the other hand, the midterm elections are near, when voters determine which party controls the government’s legislative branch. This might heighten volatility in the stock market. However, the market volatility related to midterm elections usually does not continue for long.
Hence, in the thick of uncertainties surrounding the market, fundamentally strong stocks The Coca-Cola Company (KO), Honda Motor Co., Ltd. (HMC), and Modine Manufacturing Company (MOD) might be solid buys for solid returns in 2023.
The Coca-Cola Company (KO)
KO is a popular beverage company that manufactures, markets, and sells various nonalcoholic beverages worldwide. The company offers sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, and energy drinks.
On September 29, KO and Molson Coors Beverage Company (TAP) entered an exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails inspired by the bright and refreshing taste of tequila and vodka-based beverages. It is expected to launch in more than 20 markets across the country in 2023 and might bolster the company’s revenue stream.
On October 20, KO declared a quarterly dividend of 44 cents per common share, payable to shareholders on December 15, 2022. The company has a record of 59 years of consecutive dividend growth. This depicts the shareholder return ability of the company.
KO’s non-GAAP net operating revenue increased 10% year-over-year to $11.05 billion for the third quarter that ended September 30, 2022. Its non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion, while its non-GAAP EPS rose 6.2% year-over-year to $0.69.
KO’s revenue estimate for the current fiscal year ending December 2022 of $42.67 billion represents a 10.4% growth from the prior year. Similarly, its EPS is estimated to improve 6.8% year-over-year to $2.48 for the same year. On top of it, KO has surpassed EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 6.5% over the past month to close its last trading session at $59.64.
KO’s POWR Ratings reflect this promising outlook. The company 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.
KO is rated a B in Stability, Sentiment, and Quality. Within the A–rated Beverages industry, it is ranked #21 out of 33 stocks.
Beyond what we’ve stated above, we have also given KO grades for Value, Momentum, and Growth. Get all KO ratings here.
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.
On October 11, 2022, HMC and LG Energy Solution announced that their new joint venture battery plant would be situated in Fayette County, Ohio. The EV batteries produced at the new plant are expected to be provided to Honda auto plants to produce EVs to be sold in North America, which should benefit the company.
HMC’s sales revenue for the first quarter ended June 30, 2022, increased 6.9% year-over-year to ¥3.83 trillion ($25.54 billion). The company’s net cash from operating activities increased considerably year-over-year to ¥618.12 billion ($4.12 billion). Its cash and cash equivalent at the end of the period increased 45% year-over-year to ¥3.63 trillion ($242.10 billion).
Analysts expect HMC’s revenue for the current fiscal year ending March 2023 to increase 330% year-over-year to $114.86 billion. Similarly, its EPS is expected to amount to $3.06 for the current year.
Over the past month, the stock has gained 6.4% to close the last trading session at $22.97.
HMC’s solid prospects are reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Stability and Quality. It is ranked #4 of 62 stocks in the Auto & Vehicle Manufacturers industry.
To see the other ratings of HMC for Growth, Momentum, and Sentiment, click here.
Modine Manufacturing Company (MOD)
MOD provides engineered heat transfer systems and components for on- and off-highway OEM vehicular applications. It operates through Climate Solutions and Performance Technologies segments.
On October 27, MOD announced that it had shipped its first chillers for the data center market from its newly repurposed production facility in Rockbridge, Virginia. "We have made a significant investment in our Rockbridge facility in order to bring world-class chillers to the North American data center market," said Eric McGinnis, President of Climate Solutions at MOD.
On August 31, MOD announced its partnership with Insight Partners and Engineered Equipment to expand access to the Airedale product line in the Carolinas and Oklahoma markets. Focusing on helping educational facilities maximize IAQ solutions in their respective markets, this partnership should allow the company to expand its customers.
For its fiscal first quarter ended June 30, 2022, MOD’s net sales increased 9.4% year-over-year to $541 million. The company’s gross profit rose 13.9% from the prior-year quarter to $83.40 million. Its operating income grew 194.3% year-over-year to $25.60 million for the quarter, while its adjusted EPS increased 60% year-over-year to $0.32.
Analysts expect the company’s EPS to come in at $1.70 for the current fiscal year ending March 2023, representing a 37.8% rise from the prior-year period. The consensus revenue estimate of $2.29 billion for the same fiscal year represents an 11.6% year-over-year improvement. Additionally, MOD surpassed Street EPS estimates in three of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 130.3% to close the last trading session at $18.19. It has gained 80.3% year-to-date.
It is no surprise that the stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. MOD also has an A grade for Growth, Value, and Sentiment. It is ranked #6 of 65 stocks in the B-rated Auto Parts industry.
Click here to see the additional ratings for MOD (Stability, Quality, and Momentum).
KO shares were trading at $59.34 per share on Wednesday morning, down $0.30 (-0.50%). Year-to-date, KO has gained 2.46%, versus a -18.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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