The stock market has been quite turbulent lately upon growing concerns over 40-year high inflation, the possibility of aggressive interest rate hikes, increasing sanctions in Russia, rising COVID-19 cases, and deepening supply chain disruptions. As the effects of these factors are not expected to subside soon, buying the dip in quality stocks could be a wise decision given a cautiously upbeat U.S. economic outlook.
Stocks possessing strong profitability and delivering steady revenue and earnings growth are typically considered high-quality stocks. And their fundamental strength helps them dodge market uncertainties relatively well. Investors’ interest in high-quality stocks is evident in the Invesco S&P 500 Quality ETF’s (SPHQ) 3.1% returns over the past month.
Therefore, it could be wise to bet on high-quality stocks Cadence Design Systems, Inc. (CDNS), PTC Inc. (PTC), IDEXX Laboratories, Inc. (IDXX), Mettler-Toledo International Inc. (MTD), and Manhattan Associates, Inc. (MANH). Despite their recent dips, their high profitability should help them rebound soon.
Cadence Design Systems, Inc. (CDNS)
CDNS provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company operates primarily through five product segments — Custom IC Design and Simulation; Digital IC Design and Signoff; Functional Verification, including Emulation and Prototyping Hardware; Intellectual Property (IP); and System Design and Analysis. In addition, the company offers services related to methodology, education, hosted design solutions, technical support, and maintenance services.
On April 12, 2022, CDNS unveiled the Cadence High-Speed Ethernet Controller IP family, which enables complete Ethernet subsystem solutions up to 800G along with Cadence SerDes PHY IP in 7nm, 5nm, and 3nm process nodes. Offering low latency and optimized for power, performance, and area (PPA), this portfolio is well suited for a broad array of Ethernet applications in the next-generation cloud, AI/ML, and 5G infrastructures. Moreover, CDNS also provides full subsystem deliveries with integrated PHY and controllers that enable customers to ease integration and streamline their SoC designs. This should further solidify its leadership position with high-performance connectivity IP offerings.
For its fiscal 2021 fourth quarter ended January 1, 2022, CDNS’ total revenue increased 1.7% year-over-year to $773.04 million. The company’s income from operations came in at $195.68 million, indicating a 5.8% year-over-year improvement. As of January 1, 2022, the company had $1.09 billion in cash and cash equivalents.
Analysts expect CDNS’ EPS to improve 15.5% year-over-year to $3.80 in fiscal 2022, ending December 31, 2022. The company surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $3.36 billion for the same fiscal year indicates a 12.4% year-over-year improvement. The company’s EPS is expected to grow at a 15.4% rate per annum over the next five years.
CDNS’ trailing-12-month gross profit margin, EBITDA margin, and ROE are 89.7%, 30.8%, and 26.6%, respectively. The stock has lost 17.7% year-to-date and closed yesterday’s trading session at $153.37.
CDNS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B grade for Sentiment. Click here to see the additional ratings for CDNS’ Growth, Value, Stability, and Momentum.
CDNS is ranked #30 of 158 stocks in the Software - Application industry.
PTC Inc. (PTC)
PTC is a software and services company that offers a portfolio of computer-aided design (CAD), product lifecycle management (PLM), application lifecycle management (ALM), and service lifecycle management (SLM) solutions that enable manufacturers to create and service products. The company's technology is also used to connect products to the Internet to capture and analyze information from them.
On January 25, 2022, PTC and Schaeffler Group, a global automotive and industrial supplier, announced a new alliance that will allow Schaeffler to standardize PTC solutions to deploy an integrated, end-to-end IT landscape. Building on Schaeffler’s successful twenty-year relationship of using PTC’s CAD and PLM solutions, this alliance will focus on the optimization of the existing environment and expansion with projects such as Schaeffler’s Enterprise Traceability or Model-Based Enterprise and the deeper integration of software development tools.
PTC’s sales for its fiscal 2022 first quarter ended December 31, 2021, increased 6.7% year-over-year to $457.72 million. The company’s non-GAAP gross profit came in at $375.07 million, up 6.3% from the prior-year period. Its non-GAAP operating income came in at $158.14 million, representing a 3.1% year-over-year improvement. As of December 31, 2021, the company had $296.13 million in cash and cash equivalents.
The consensus EPS estimate of $4.34 for fiscal 2022 ending September 30, 2022, represents a 9.3% year-over-year improvement. It surpassed Street EPS estimates in each of the trailing four quarters. Analysts expect PTC’s revenue to improve 6.7% year-over-year to $1.93 billion for the same fiscal year. The company’s EPS is expected to grow at an 11.4% rate per annum over the next five years.
The company’s trailing-12-month gross profit margin, EBITDA margin, and ROE are 79.3%, 25%, and 29%, respectively. The stock has lost 17% year-to-date and ended yesterday’s trading session at $100.56.
PTC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Quality. Click here to see the additional ratings for PTC (Growth, Value, Stability, Sentiment, and Momentum).
PTC is ranked #33 in the Software - Application industry.
IDEXX Laboratories, Inc. (IDXX)
IDXX manufactures and distributes products and provides services for the companion animal, veterinary, livestock and poultry, dairy, and water testing markets. It also sells portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market.
On January 13, 2022, IDXX announced a series of product and service enhancements that enable veterinary practices to be more efficient while managing increasing patient volumes. IDXX’s IDEXX 4Dx Plus Test features clinical decision support on VetConnect PLUS, which provides follow-up considerations and patient-specific interpretive assistance to help veterinarians identify evidence of active infection. Its SediVue Dx Urine Sediment Analyzer now features Neural Network 6.0, its latest and most advanced algorithmic software powered by 800 million urine sediment images, which will help veterinarians determine the presence of a urinary tract infection faster. These time-saving enhancements that provide deeper and actionable insights should witness higher demand in the coming months.
IDXX’s revenue for its fiscal year 2021 fourth quarter ended December 31, 2021, increased 11.1% year-over-year to $801.09 million. The company’s gross profit came in at $456.42 million, representing an 11.5% year-over-year improvement. Its income from operations came in at $199.19 million for the quarter, indicating a 7.6% rise from the prior-year period. The company had $144.45 million in cash and cash equivalents as of December 31, 2021.
Analysts expect the company’s EPS to grow 9.8% from the prior-year period to $9.44 for fiscal 2022, ending December 31, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $3.54 billion for the same fiscal year indicates a 10.2% year-over-year improvement. IDXX’s EPS is expected to grow at a 24.2% rate per annum over the next five years.
IDXX’s trailing-12-month gross profit margin, EBITDA margin, and ROE are 58.8%, 32.2%, and 112.6%, respectively. The stock has lost 24.5% year-to-date and closed yesterday’s trading session at $497.24.
IDXX’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Quality and a B grade for Stability and Sentiment. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for IDXX’s Growth, Value, and Momentum here.
IDXX is ranked #21 of 60 stocks in the Medical - Devices & Equipment industry.
Mettler-Toledo International Inc. (MTD)
MTD manufactures and markets precision, weighing, and analytical instruments for laboratory, industrial, packaging, logistics, and food retailing applications worldwide. The company also supplies end-of-line inspection systems used in food production and packaging, pharmaceutical, and other industries. It markets its products through its direct sales force and indirect distribution channels.
On March 22, 2022, MTD introduced its new single-draft weigh-in-motion scale, TruckPass, enabling legal-for-trade accuracy levels. With the updates to Handbook 44 in the U.S., operations can now benefit from this revolutionary technology by eliminating long lines of trucks to complete a transaction, improving driver safety and data management, and static and dynamic check weighing. This should witness high demand in the coming months.
MTD’s net sales for the fiscal 2021 fourth quarter ended December 31, 2021, increased 10.6% year-over-year to $1.04 billion. The company’s gross profit came in at $607.13 million, indicating an 8.6% year-over-year improvement. Its adjusted operating profit came in at $319.07 million, up 9% from the prior-year period. While its net income increased 6.7% year-over-year to $230.87 million, its adjusted EPS grew 13.7% to $10.53. As of December 31, 2021, the company had $98.56 million in cash and cash equivalents.
Analysts expect MTD’s EPS to improve 12.3% year-over-year to $38.19 for its fiscal 2022, ending December 31, 2022. It surpassed Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $3.95 billion for the same fiscal year represents a 6.1% rise from the prior-year period. The company’s EPS is expected to grow at a 17.8% rate per annum over the next five years.
MTD’s trailing-12-month gross profit margin, EBITDA margin, and ROE are 58.4%, 28.9%, and 338.7%, respectively. MTD has lost 22.6% year-to-date and ended yesterday’s trading session at $1,313.77.
MTD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Quality. Click here to see the additional ratings for MTD (Value, Stability, Growth, Sentiment, and Momentum).
MTD is ranked #5 of 51 stocks in the Medical - Diagnostics/Research industry.
Manhattan Associates, Inc. (MANH)
MANH operates as a developer and provider of supply chain commerce solutions for retailers, wholesalers, manufacturers, logistics providers, and other organizations. The company’s solutions include software, services, and hardware, which coordinate people, workflows, assets, events, and tasks across the functions linked in a supply chain from planning through execution.
On March 24, 2022, New Look, a British global fashion retailer, chose MANH’s Manhattan Active Omni to provide a single view of inventory across all customer touchpoints, enabling the retailer to maximize full-price sales by surfacing inventory availability across all channels. It will also enhance existing store capabilities, allowing for added omni-channel functionality. MANH’s order management system will enable New Look to integrate more stock sources and marketplaces, ship products faster, and generate more profitably from stores and warehouses.
For its fiscal 2021 fourth quarter ended December 31, 2021, MANH’s total revenue increased 16.6% year-over-year to $171.49 million. The company’s adjusted operating income came in at $39.07 million for the quarter, representing a 3.9% year-over-year improvement. While its adjusted net income increased 6.3% year-over-year to $30.62 million, its adjusted EPS grew 6.7% to $0.48. It had $263.71 million in cash and cash equivalents as of December 31, 2021.
The consensus revenue estimate of $710.30 million for fiscal 2022 ending December 31, 2022, indicates a 7% year-over-year improvement. MANH surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The company’s EPS is expected to grow at a 15% rate per annum over the next five years.
MANH’s trailing-12-month gross profit margin, EBITDA margin, and ROE are 55.1%, 21.4%, and 47.1%, respectively. The stock has lost 14.4% year-to-date and ended yesterday’s trading session at $133.15.
MANH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Sentiment. Click here to see the additional ratings for MANH (Growth, Momentum, Value, and Stability).
The stock is ranked #27 in the Software - Application industry.
CDNS shares were trading at $155.79 per share on Wednesday afternoon, up $2.42 (+1.58%). Year-to-date, CDNS has declined -16.40%, versus a -6.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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