Following the robust November job report, the Institute for Supply Management (ISM) reported that its services index expanded faster in the month than anticipated, at a 56.5 level compared to the estimate of 53.5 and above October’s reading of 54.4. Meanwhile, new orders for U.S.-manufactured goods also beat expectations, rising 1.0% in October.
These positive economic data compound fears as the U.S. economy is not cooling off despite aggressive interest rate hikes by the Fed. According to Deutsche Bank analyst Henry Allen, the recent jobs report means there’s still potential for inflation to surprise to the upside and for the Federal Reserve to stay aggressive.
Investors see an 89% chance that the U.S. central bank will increase interest rates by 50 basis points next week to 4.25%-4.50%. The rates are expected to peak at 4.984% in May 2023. The U.S. central bank has been aggressively raising interest rates since March to tame inflation, which has raised the risk of an economic downturn.
Given the uncertainties, it could be wise to invest in rock-solid stocks Microsoft Corporation (MSFT), The Coca-Cola Company (KO), The Kroger Co. (KR), and Overseas Shipholding Group, Inc. (OSG) now.
Microsoft Corporation (MSFT)
MSFT is a tech giant 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 November 16, MSFT and Lockheed Martin Corporation (LMT) announced a landmark expansion of their partnership to help power the next generation of technology for the Department of Defense (DOD).
The agreement would span four critical areas of the DOD. Through this historic agreement, both companies are blazing a new path in the classified cloud, artificial intelligence, and 5G.MIL capabilities for the Department of Defense.
On November 14, MSFT announced the Microsoft Supply Chain Platform to help organizations maximize their supply chain data estate investment with an open approach. The company also announced the preview of Microsoft Supply Chain Center, designed to work natively with an organization’s supply chain data and applications, with built-in collaboration, supply and demand insights, and order management.
On September 20, MSFT declared a quarterly dividend of $0.68 per share, payable to shareholders on December 8, reflecting a 10% increase over the previous quarter’s dividend.
Its annual dividend of $2.72 yields 1.07% on prevailing prices. The company’s dividend payouts have increased at a 10.4% CAGR over the past three years and a 9.8% CAGR over the past five years. MSFT has a record of 18 years of consecutive dividend growth.
For the first quarter of the fiscal year 2023 ended September 30, MSFT’s total revenue increased 10.6% year-over-year to $50.12 billion, while Its service and other revenue came in at $34.38 billion, up 19.9% year-over-year. The company’s operating income grew 6.3% from the year-ago value to $21.52 billion.
The consensus EPS estimate of $2.36 for the fiscal third quarter ending March 2023 indicates a 6.1% improvement year-over-year. Its consensus revenue estimate of $52.85 billion for the same quarter represents a rise of 7.1% year-over-year. MSFT has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 13% over the past month, closing its last trading session at $250.20.
MSFT’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.
MSFT is rated a B in Stability, Sentiment, and Quality. Within the Software – Business industry, it is ranked #9 out of 52 stocks.
To see additional POWR Ratings for Value, Growth, and Momentum for MSFT, click here.
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 into 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 will be launched in more than 20 markets across the country in 2023 and might bolster the company’s revenue stream.
On October 20, KO announced its regular quarterly dividend of $0.44 per common share, payable on December 15.
The company pays $1.76 per share dividends annually, which translates to a 2.74% yield at the current price. It has a 4-year average dividend yield of 3.08%. The company has raised its dividend for the past 60 years. Moreover, it has increased its dividend at a CAGR of 3.2% over the past three years and a CAGR of 3.5% over the past five years.
During the fiscal third quarter ended September 30, KO’s non-GAAP net operating revenue came in at $11.05 billion, up 10% year-over-year. The company’s non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion. Moreover, its non-GAAP net income per share increased 6.2% year-over-year to $0.69.
KO’s EPS is estimated to improve by 7.4% year-over-year to $2.49 for the fiscal year ending December 2022. Similarly, its revenue estimate of $42.70 billion represents a 10.5% growth from the prior year. On top of it, KO has surpassed EPS estimates in all of its four trailing quarters.
The stock has gained 7.1% over the past month to close its last trading session at $63.47.
It’s no surprise that KO has an overall rating of B, which translates to Buy in our proprietary rating system.
KO is rated a B in Stability, Sentiment, and Quality. Within the A–rated Beverages industry, it is ranked #16 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.
The Kroger Co. (KR)
KR operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses.
On October 18, KR announced the official opening of its newest Customer Fulfillment Center in Romulus, Michigan, which will leverage advanced robotics technology and creative solutions to redefine the customer experience for customers in the greater Detroit area. The expansion should help drive up the company’s revenue stream over time.
On October 14, KR and Albertsons Companies (ACI) announced that they have entered into a definitive agreement under which the companies will merge, aiming to expand the customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience.
The company expects this collaboration to drive profitable growth and sustainable value for all its shareholders.
On September 15, KR declared a quarterly dividend of 26 cents per share to be paid to shareholders on December 1, 2022. The company has 16 years of consecutive dividend growth. Its annual dividend of $1.04 yields 2.26% on prevailing prices. The company’s dividend payouts have increased at a 16.1% CAGR over the past three years and a 13.9% CAGR over the past five years.
KR’s sales increased 7.3% year-over-year to $34.20 billion in the fiscal third quarter ending November 5. Its adjusted EBITDA grew 10.9% from the year-ago value to $7.78 billion, while its adjusted EPS improved 12.8% year-over-year to $0.88.
Street expects KR’s revenue for the fiscal year ending January 2023 to come in at $148.30 billion, indicating an increase of 7.6% year-over-year. The company’s EPS is expected to grow 12.1% year-over-year to $4.12 in the same year. Moreover, the company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
It has gained 6.1% over the past year to close the last trading session at $46.07.
KR’s impressive prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has a B grade in Value and Quality. KR is ranked #14 out of the 39 stocks in the A-rated Grocery/Big Box Retailers industry.
In addition to the POWR Rating grades just highlighted, you can see KR ratings for Growth, Sentiment, Momentum, and Stability here.
Overseas Shipholding Group, Inc. (OSG)
OSG owns and operates a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products. OSG is a major operator of tankers and ATBs in the Jones Act industry. In addition, OSG also owns and operates one Marshall Islands flagged MR tanker, which trades internationally.
On November 15, OSG announced that it had agreed to purchase five million shares of the company’s common stock from Cyrus Capital at $2.86 per share for a total of $14.30 million. The transaction was completed on the same day.
Sam Norton, the President and CEO of OSG, said, “The price paid in this share purchase equates to an enterprise value of roughly 4.5 times expected 2022 adjusted EBITDA, an implied valuation which we consider to be very attractive.”
OSG’s shipping revenues increased 31% year-over-year to $123.06 million in the third quarter of the fiscal year ended September 30, 2022. Its operating income came in at $22.43 million, compared to an operating loss of $5.64 million during the previous-year quarter.
The company’s net income came in at $13.25 billion or $0.15 per share, compared to a net loss of $16 million or $0.18 per share during the same quarter last year.
The stock has gained 67.3% over the past year and 52.1% year-to-date to close its last trading session at $2.86.
OSG’s strong fundamentals are reflected in its overall A rating, which translates to a Strong Buy in our proprietary rating system.
It also has grade A for Momentum and Quality and grade B for Growth, Value, and Sentiment. OSG is ranked first among the 46 stocks in the A-rated Shipping industry.
Click here to access additional POWR Ratings of OSG for Stability.
MSFT shares rose $0.36 (+0.14%) in premarket trading Tuesday. Year-to-date, MSFT has declined -24.70%, versus a -14.86% 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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