Despite a solid start this year, the stock market is still under pressure. Amid signs that inflation pressures aren’t cooling off as quickly as expected, traders are now betting that there’s a 100% probability that the Fed will raise rates again at its next meeting in March.
Although the market is volatile, investors should stay invested and focus on their long-term investments. I think fundamentally strong stocks McDonald’s Corporation (MCD), Verizon Communications Inc. (VZ), Salesforce, Inc. (CRM), Humana Inc. (HUM), and STMicroelectronics N.V. (STM) are poised for long-term growth and could be top picks for your portfolio.
According to Morgan Stanley strategists, the headwinds for US equities are set to increase further in the coming month, with stocks coming under pressure from faltering earnings and high valuations.
Michael Wilson, one of the strategists, said that March is a high-risk month for the next leg lower in stocks. The strategist had previously mentioned that he expects equities to bottom in the spring, forecasting the S&P 500 will slide as much as 24% to 3,000 points in the first half of this year.
Additionally, the National Association for Business Economics’ latest survey shows a “significant divergence” among respondents about where they think the US economy is heading in 2023. However, nearly 60% of survey respondents believed the United States had a more than 50% shot of entering a recession in the next 12 months.
Take a detailed look at the stocks mentioned above:
McDonald’s Corporation (MCD)
Leading foodservice chain MCD operates and franchises its restaurants in the United States and internationally. The company’s segments include the United States (U.S.); International Operated Markets (IOM); and International Developmental Licensed Markets & Corporate (IDL).
On December 15, 2022, MCD and all five members of the restaurant chain’s North American Logistics Council (NALC) signed agreements with Enel North America to purchase renewable energy and the associated renewable energy certificates (RECs) from Enel Green Power’s Blue Jay solar project. This should help MCD achieve its sustainability goals.
MCD pays $6.08 annually as dividends. This translates to a yield of 2.31% on the current price. Its four-year average dividend yield is 2.26%. The company increased its dividend payouts for 21 consecutive years.
During the fourth quarter that ended December 31, 2022, MCD’s revenues from franchised restaurants increased 7.5% year-over-year to $3.65 billion. Its operating income grew 7.7% from the prior-year period to $2.58 billion. Also, the company’s net income and EPS increased 16.1% and 18.8% year-over-year to $1.90 billion and $2.59, respectively.
Street expects MCD’s revenue to increase 5.1% year-over-year to $24.37 billion in 2023. The company’s EPS for the current year is expected to grow 4.9% year-over-year to $10.59. Also, it has surpassed the consensus EPS estimates in all four trailing quarters, which is impressive.
Over the past year, the stock has gained 5.5% to close the last trading session at $264.78.
MCD’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MCD has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Restaurants industry, it is ranked #10 out of 45 stocks.
Click here to access the additional POWR Ratings for Growth, Value, and Momentum for MCD.
Verizon Communications Inc. (VZ)
VZ and its subsidiaries offer communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. Its segments are Consumer and Business.
On February 12, VZ announced that its newest data plan, 50 Mbps Verizon Fios service, will be introduced in Boston to help small business owners in the Boston area access high-speed internet access. This should boost the revenue streams of the company.
VZ pays $2.61 annually as dividends which translates to a yield of 6.74% at the current price, higher than the 4-year average dividend yield of 4.77%. Its dividend payments have grown at a CAGR of 2% over the past three years. It has paid dividends for 22 consecutive years.
VZ’s operating revenues rose 3.5% year-over-year to $35.25 billion in the fourth quarter that ended December 31, 2022. Moreover, its wireless equipment revenues increased 4.1% year-over-year to $7.63 billion. VZ’s net income and EPS came in at $6.70 billion and $1.56, reflecting an increase of 41.4% and 40.5% from the prior-year quarter.
VZ’s revenue is expected to increase 1.2% year-over-year to $33.95 billion in the fiscal first quarter ending March 2023. Its EPS is expected to amount to $1.19 in the same quarter. Additionally, it has topped consensus revenue estimates in each of the trailing four quarters.
The stock gained marginally intraday to close the last trading session at $38.88.
VZ’s positive outlook is reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary POWR Ratings system.
It also has a B grade for Value, Stability, and Quality. VZ is ranked #4 out of 20 stocks in the Telecom – Domestic industry.
For the additional POWR Ratings for Growth, Momentum, and Sentiment for VZ, click here.
Salesforce, Inc. (CRM)
CRM is a provider of customer relationship management technology. The company’s Customer 360 platform enables its customers to work together to deliver connected experiences. Its service offerings include Sales, Marketing, and Commerce. CRM provides its services for customers in financial services, healthcare, manufacturing, and other industries.
On January 12, 2023, CRM introduced a series of innovations to help retailers personalize every shopping moment.
Jujhar Singh, EVP and GM of Salesforce Industries, said, “Salesforce for Retail brings together the power and flexibility of Salesforce’s platform with an expansive ecosystem so retailers can leverage real-time data to acquire new customers, deliver personalized experiences, generate advertising revenue, increase margins, and drive efficiency.”
CRM’s total revenues increased 14.2% year-over-year to $7.84 billion during the third quarter that ended October 31, 2022. Its subscription and support revenue increased 13.4% year-over-year to $7.23 billion, while its professional services and other revenue came in at $604 million, up 24.8% year-over-year.
The company’s non-GAAP income from operations came in at $1.78 billion, up 30.9% from the prior year’s period. In addition, CRM’s non-GAAP net income increased 9.8% year-over-year to $1.40 billion.
Analysts expect CRM’s revenue to come in at $7.99 billion, indicating a 9.1% year-over-year growth for the fiscal fourth quarter that ended January 2023. The company’s EPS is expected to increase 62.4% year-over-year to $1.36. Additionally, CRM has topped consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 23% year-to-date to close the last trading session at $163.14.
CRM’s POWR Ratings reflect its strong fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
CRM also has an A grade for Growth and a B for Sentiment. It is ranked #21 out of 138 stocks in the Software – Application industry.
Click here to access additional ratings for CRM (Stability, Value, Quality, and Momentum).
Humana Inc. (HUM)
HUM and its subsidiaries operate as a health and well-being company in the United States. It operates through three segments: Retail; Group and Specialty; and Healthcare Services.
On February 28, HUM announced it had priced a public offering of $1.25 billion in aggregate principal amount of senior notes. The company intends to use the net proceeds from the senior notes offerings to repay outstanding amounts under its $500 million delayed draw term loan and the rest for general corporate purposes.
On February 16, HUM declared a cash dividend to stockholders of $0.885 per share, payable on April 28, 2023. This reflects an increase of 12.4% from the previous per-share dividend.
HUM has paid dividends for ten consecutive years. While its four-year average dividend yield is 0.65%, its current dividend translates to a 0.70% yield. Its dividend payouts have grown at a CAGR of 12.7% over the past three years.
HUM’s adjusted revenues rose 5.9% year-over-year to $22.44 billion for the fiscal fourth quarter that ended December 31, 2022. Its income from operations increased 103.3% year-over-year to $124 million. Also, its adjusted EPS grew 30.6% year-over-year to $1.62.
HUM’s revenue is expected to increase 10.5% year-over-year to $26.49 billion in the current quarter ending March 2023. Its EPS is estimated to rise 18.2% year-over-year to $9.50 in the same quarter. It has surpassed EPS estimates in all four trailing quarters.
The stock has gained 17.1% over the past year to close the last trading session at $506.51.
It’s no surprise that HUM has an overall A rating equating to a Strong Buy in our POWR Ratings system.
It has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #5 among 11 stocks in the A-rated Medical – Health Insurance industry.
Beyond what we’ve stated above, we have also given HUM grades for Stability and Momentum. Get all the HUM ratings here.
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM is a semiconductor company that develops, manufactures, and markets a range of semiconductor products. It has three segments: Automotive and Discrete Group (ADG); Analog, MEMS, and Sensors Group (AMS); and Microcontrollers and Digital ICs Group (MDG).
On February 27, STM introduced the ST-ONEHP integrated digital controller, the world’s first IC certified by USB-IF according to the USB Power Delivery Extended Power Range (USB PD 3.1 EPR) specification. Innovations like this should help boost its product portfolio.
STM pays an annual dividend of $0.24 that yields 0.51% on the prevailing prices. It has a four-year average dividend yield of 0.77%. The company has paid dividends for eight consecutive years.
During the fiscal third quarter that ended October 1, 2022, STM’s net revenues increased 24.4% year-over-year to $4.42 billion. Its operating income increased 45.4% to $1.29 billion, and gross profit grew 30.6% year-over-year to $2.10 billion.
The company’s net income increased 66.6% year-over-year to $1.25 billion, while earnings per share attributable to parent company stockholders rose 61% year-over-year to $1.32.
Street expects STM’s EPS for the fiscal first quarter ending March 2023 to be $1.01, indicating a 27.5% year-over-year growth. The company’s revenue for the same quarter is expected to rise 18.3% from the prior-year quarter to $4.19 billion. Additionally, STM has topped consensus EPS and revenue estimates in each of the trailing four quarters.
It has gained 37.9% over the past six months to close its last trading session at $48.20. It gained 1.5% intraday.
STM’s robust prospect is reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
STM has a B grade for Value, Sentiment, and Quality. It is ranked #2 in the 92-stock Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings just highlighted, one can access STM’s grades for Stability, Growth, and Momentum here.
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MCD shares were unchanged in premarket trading Tuesday. Year-to-date, MCD has gained 0.47%, versus a 4.00% 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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