While the economy saw non-farm payrolls increase by 223,000 jobs during the last month of the year, encouragement for the Federal Reserve was also found in the form of moderation in wage growth to 4.6%, from 4.8% in November.
This ‘Goldilocks’ jobs report has rekindled the market’s hopes of a soft landing. Mark Zandi, the chief economist at Moody’s Analytics, termed this optimistic scenario as a ‘slowcession’ while explaining, “This is consistent with the Fed threading the needle of slowing growth sufficiently to slow inflation but not pushing the economy into recession.”
In such a scenario, it would be wise to load up on shares of fundamentally strong and profitable businesses which have performed brilliantly during the torrid 2022 and look set to continue their momentum in 2023.
To that end, Cisco Systems, Inc. (CSCO), United Microelectronics Corporation (UMC), and Acuity Brands, Inc. (AYI) look primed to deliver significant upside this year.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells internet protocol-based networking and other products across networking, security, collaboration, applications, and the cloud. The company operates through three geographic segments: the Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
On December 7, 2022, CSCO announced a quarterly cash dividend of $0.38 per common share, payable on January 25. The company pays a $1.52 per share dividend annually, which translates to a yield of 3.15% at the current price. This compares to the four-year average dividend yield of 2.98%.
CSCO has increased its dividend payouts for 11 consecutive years. Over the past five years, the company’s dividend grew at a 5.6% CAGR.
On November 29, CSCO announced the launch of AppDynamics Cloud capabilities that allow organizations to achieve observability over cloud-native applications correlated to business context across the entire IT estate. These capabilities will initially support applications and digital services running on Amazon Web Services (AWS).
On November 1. CSCO announced an expansion in its portfolio of specializations to support partner competitiveness and recognize deep expertise. The six new specializations are tied to customer priorities and represent fast-growing market opportunities for the company and its partners.
On the same day, CSCO announced new capabilities across its security portfolio so teams can be more productive and protected wherever they are working from. The end-to-end platform will safeguard users, devices, and applications across public clouds and private data centers without public cloud lock-in.
For the fiscal 2023 first quarter ended October 29, 2022, CSCO’s revenue increased 5.4% year-over-year to $13.6 billion, while its operating income increased 3% year-over-year to $3.54 billion. The company’s non-GAAP net income increased 2.1% year-over-year to $3.55 billion, which translates to an EPS of $0.86, up 4.9% year-over-year.
CSCO’s trailing-12-month gross profit margin of 62.23% is 25.7% greater than the industry average of 49.53%. The company’s trailing-12-month EBITDA and net income margins of 30.34% and 22% comfortably surpass the industry averages of 11.67% and 3.22%.
Analysts expect CSCO’s revenue and EPS for the fiscal year 2023 to increase 5.7% and 5.6% year-over-year to $54.50 billion and $3.55, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
CSCO’s stock has gained 12.3% over the past six months to close the last trading session at $48.58.
CSCO’s fundamental strength is reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CSCO also has an A grade for Quality and a B for Stability. It is ranked #4 of 48 stocks in the B-rated Technology – Communication/Networking industry.
Click here to see the additional POWR Ratings for Growth, Momentum, Sentiment, and Value for CSCO.
United Microelectronics Corporation (UMC)
UMC operates as a semiconductor wafer foundry internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. It is headquartered in Hsinchu City, Taiwan.
On November 29, UMC and Cadence Design Systems, Inc. (CDNS) announced exceptional results were being experienced by customers that are adopting their certified mmWave reference flow. This has enabled UMC RF FDK and Cadence RF solution to enable Gear Radio to achieve exceptional 5G RF design results.
On September 22, UMC and Siemens AG (SIEGY) announced their collaboration to develop and implement a new multi-chip 3D integrated circuit (IC) planning, assembly validation and parasitic extraction (PEX) workflow for UMC’s wafer-on-wafer and chip-on-wafer technologies.
By stacking silicon die or chiplets on top of each other in a single packaged device, UMC could provide its customers greater performance and functionality at lower power and with less space than traditional configurations of laying out multiple chips on a PCB.
On August 24, UMC and CDNS announced that the Cadence analog/mixed-signal (AMS) IC design flow had been certified for UMC’s 22ULP/ULL process technologies. This flow optimizes process efficiency and shortens design cycle time, accelerating the development of 5G, IoT, and display application designs to meet increasing market demand.
UMC’s operating revenues came in at NT$75.39 billion ($2.47 billion) for the third quarter of 2022, representing a 34.9% year-over-year growth. Its operating income grew 99.3% from the prior-year quarter to NT$30.17 billion ($988.64 million), while the net income attributable to shareholders of the parent increased 54.6% year-over-year last year to NT$ 27 billion ($884.76 million) during the same period.
UMC’s quarterly earnings per ADS increased 53.3% from the prior-year period to $0.35.
UMC’s trailing-12-month EBITDA and net income margins of 52.2% and 31.14% surpass the industry averages of 11.67% and 3.22%, respectively. Also, the company’s trailing-12-month ROCE of 29.39% compares favorably to the industry average of 4.99%.
Analysts expect UMC’s revenue and EPADS for fiscal 2022 to come in at $9.14 billion and $ 1.18, up 18.8% and 42.5% year-over-year, respectively.
UMC has gained 1.4% over the past month and 11.8% over the past six months to close the last trading session at $7.28.
It is no surprise that UMC has an overall A rating, which translates to Strong Buy in our POWR Ratings system. It also has an A grade for Value and Quality.
UMC ranks #2 of 93 stocks in the B-rated Semiconductor & Wireless Chip industry.
Beyond what we’ve stated above, we have also given UMC grades for Growth, Momentum, Stability, and Sentiment. Get all UMC ratings here.
Acuity Brands, Inc. (AYI)
AYI provides lighting and building management solutions in North America and internationally. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG).
On November 1, AYI paid its quarterly dividend of $0.13 per share. The company pays $0.52 annually as dividends which translates to a yield of 0.30% at the current price, comparable to the 4-year-average dividend yield of 0.36%.
For the fiscal 2023 first quarter, ended November 30, 2022, AYI’s net sales increased 7.8% year-over-year to $997.9 million through product vitality and service in both lighting and spaces businesses. During the same period, the company’s adjusted operating profit increased 5.3% year-over-year to $140.1 million, while its adjusted EBITDA increased 4.1% to $153 million.
AYI’s non-GAAP net income increased 6.1% and 15.4% year-over-year to $107.5 million and $3.29 per share, respectively.
AYI’s trailing-12-month gross profit, EBITDA, and net income margins of 41.77%, 14.90%, and 9.11% compare favorably to the industry averages of 29.06%, 13.27%, and 6.75%, respectively.
Analysts expect AYI’s revenue and EPS for fiscal 2023 to increase 4.3% and 7.2% year-over-year to $4.18 billion and $13.76, respectively. The stock has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 10.6% over the past six months to close the last trading session at $174.65.
AYI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. AYI also has an A grade for Quality and a B for Value.
AYI is ranked #2 of 59 stocks in the Home Improvement & Goods industry. Click here for additional POWR Ratings for AYI’s Growth, Stability, Sentiment, and Momentum.
CSCO shares were trading at $48.89 per share on Tuesday afternoon, up $0.31 (+0.64%). Year-to-date, CSCO has gained 3.44%, versus a 1.95% 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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