The constant rate hikes by the Fed to curb inflation kept the stock market under pressure last year. However, inflation cooled down again in December 2022. CPI increased by 6.5% year-over-year and dipped 0.1% over the prior month, in line with the Dow Jones estimate.
However, since inflation is far more than the desired rate, the central bank has expressed its intentions to continue rate hikes until it falls below 2%. Financial markets have priced in a 25-basis-point rate increase in February.
In addition, the U.S. economy added 223,000 jobs in December, while hourly wages grew at the slowest annual pace in 16 months. Strong job growth with slowing wage increases could result in the ‘soft landing’ that the Fed is hoping for.
Against this backdrop, fundamentally strong stocks Cisco Systems, Inc. (CSCO) and Albertsons Companies, Inc. (ACI) might be solid portfolio additions now.
Cisco Systems, Inc. (CSCO)
CSCO manufactures and sells Internet Protocol-based networking and other products related to the communications and information technology industry. The company serves businesses of various sizes, governments, public institutions, and service providers.
On December 7, 2022, CSCO announced a quarterly dividend of $0.38 per common share, payable to shareholders on January 25, 2023. This reflects the shareholder return ability of the company.
On November 1, CSCO expanded its portfolio of specializations available through the company’s partner program. The six new specializations would focus on customer priorities and represent fast-growing market opportunities for the company and its partners in areas where CSCO has been innovating.
CSCO’s trailing-12-month net income margin of 22% is 582.7% higher than the industry average of 3.22%. Its trailing-12-month ROCE of 27.72% is 483.2% higher than the 4.75% industry average.
For the fiscal first quarter that ended October 29, 2022, CSCO’s total revenue increased 5.7% year-over-year to $13.63 billion. The company’s non-GAAP net income increased 2.1% year-over-year to $3.55 billion. CSCO’s non-GAAP EPS for the fiscal quarter increased 4.9% from the prior-year period to $0.86.
For the fiscal year ending 2023, the company expects its revenue to grow between 4.5% to 6.5% year-over-year. Its non-GAAP EPS is expected to come between $3.51 and $3.58 for the same period.
For the fiscal second quarter ending January 2023, analysts expect CSCO’s revenue to come in at $13.41 billion, representing an increase of 5.4% year-over-year. For the same quarter, the consensus EPS estimate of $0.86 indicates a 1.8% year-over-year increase. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 11.6% over the past six months to close its last trading session at $48.08. Moreover, it has gained 16.4% over the past three months.
CSCO’s POWR Ratings reflect a promising outlook. CSCO's overall A rating translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CSCO has an A grade for Quality and B for Stability. Within the Technology - Communication/Networking industry, it is ranked #4 out of 49.
Click here to see the additional POWR Ratings for CSCO (Growth, Value, Momentum, and Sentiment).
Albertsons Companies, Inc. (ACI)
ACI is engaged in the operation of food and drug stores in the United States. It offers grocery, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
On January 12, Afresh Technologies, a fresh food technology company, and ACI announced the completion of an enterprise rollout of the Afresh AI-powered platform, deployed in more than 2,000 stores of ACI in seven months.
Suzanne Long, Chief Sustainability and Transformation Officer at ACI, said, "Our partnership with Afresh helps better manage our inventory of fresh fruits and vegetables in support of our goal to eliminate food waste going to landfill by 2030. In addition, it helps to ensure our customers have access to fresher products when shopping with us."
On January 10, ACI declared a cash dividend for the fourth quarter of fiscal 2022 of $0.12 per share of common stock, payable on February 10, 2023. This reflects the cash generation ability of the company.
On October 14, 2022, ACI and Kroger Co. (KR) announced a definitive merger agreement to establish a national footprint. The companies intend to invest $1 billion to continue raising associate wages and benefits and enhance customer experience.
ACI’s trailing-12-month levered FCF margin of 6.97% is 146.3% higher than the industry average of 2.83%. Also, its trailing-12-month ROCE of 81.65% is 671.3% higher than the 10.59% industry average.
ACI’s net sales and other revenue increased 8.5% year-over-year to $18.15 billion in the fiscal third quarter that ended December 3, 2022. Its gross margin grew 6% from the year-ago value to $5.12 billion.
The company’s adjusted net income came in at $505.10 million, representing an increase of 10.5% year-over-year, while its adjusted net income per Class A share rose 10.1% year-over-year to $0.87.
ACI’s revenue is expected to increase 7.9% year-over-year to $77.54 billion in the current fiscal year ending February 2023. Its EPS is expected to increase 4.7% from the prior year to $3.21. It surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 2.7% over the past month to close the last trading session at $21.21.
ACI’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Quality, and Sentiment. In the A-rated Grocery/Big Box Retailers industry, it is ranked #7 out of 39 stocks.
In addition to the POWR Ratings we have mentioned above, click here to see ACI for Growth, Momentum, and Stability ratings.
CSCO shares rose $0.15 (+0.31%) in premarket trading Wednesday. Year-to-date, CSCO has gained 2.09%, versus a 4.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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