The Federal Reserve has announced its fourth consecutive 75-basis-point interest rate hike today. While the central bank has hinted at potentially slower rate hikes in the future, the economy might still be unable to avoid a recession.
Since bears and fears are reigning on Wall Street, with investors on their toes to short at the first sign of trouble, the markets are unlikely to return to stability anytime soon. However, according to legendary investor Warren Buffet, this slump may be the best time for long-term investors to get greedy and buy into businesses with fundamental strength, quality, and resilience to survive the current turbulence and emerge stronger.
Given the backdrop, it could be wise to invest in fundamentally solid stocks, Microsoft Corporation (MSFT), Sprouts Farmers Market, Inc. (SFM), and Universal Logistics Holdings, Inc. (ULH), for solid long-term returns.
Microsoft Corporation (MSFT)
As one of the major tech firms in the United States and worldwide, MSFT needs no introduction. The company operates through three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.
On October 20, 2022, MSFT and UBS Group AG (UBS) announced a landmark expansion of their partnership to accelerate UBS’s public cloud footprint over the next five years. MSFT’s rich set of productivity and collaboration tools would enable UBS to increase the speed at which it can deliver and improve upon its digital experiences for clients and employees.
On October 12, MSFT and Cisco Systems, Inc. (CSCO) announced a new partnership to provide customers with more choices. In the first half of 2023, CSCO and MSFT will offer the ability to run Microsoft Teams natively on Cisco Room and Desk devices Certified for Microsoft Teams, with Teams as the default experience option. This is expected to broaden the reach of MSFT’s suite of productivity and collaboration tools.
On September 20, MSFT declared a quarterly dividend of $0.68 per share, reflecting a 10% sequential increase. The dividend is payable on December 8, 2022. MSFT pays $2.72 annually as a dividend, representing a yield of 1.19% at the current price, higher than the 4-year average dividend yield of 1.06%. The company’s dividends have grown for 17 consecutive years.
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 operating income grew 6.3% from the year-ago value to $21.52 billion.
For the fiscal year ending June 2023, analysts expect MSFT’s revenue to come in at $212.83 billion, representing an increase of 7.4% year-over-year, while its EPS is expected to increase 3.4% year-over-year to $9.52. The company has surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
MSFT’s shares have dipped 2.9% over the past month to close the last trading session at $228.17.
MSFT’s POWR Ratings reflect its promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
Also, the stock has grade B for Stability and Quality. Within the Software – Business industry, it is ranked #9 of 53 stocks.
Click here for MSFT’s additional POWR Ratings for Growth, Value, Sentiment, and Momentum.
Sprouts Farmers Market, Inc. (SFM)
SFM operates as a food retailer and grocery store. The company offerings are categorized as perishable and mom-perishable. They include fresh, natural, organic food that includes fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, body care, and natural household items.
On November 2, SFM announced its partnership with DoorDash Inc. (DASH) in select cities, beginning with Phoenix, Arizona, for on-demand grocery delivery. Customers can order thousands of fresh, natural, organic products from SFM by visiting the DoorDash mobile app or website. This is expected to have a positive impact on SFM’s topline.
On October 11, SFM and PRESS Coffee announced a new pilot of the first-ever locally owned PRESS Coffee location inside an SFM store. Dave McGlinchey, chief strategy officer of SFM, remarked that it was an easy decision given the shared mission of both organizations to provide people with fresh, quality, sustainable, and ethically sourced specialty products.
For the second quarter of the fiscal year 2022 ended July 3, SFM’s net sales increased 4.8% year-over-year to $1.60 billion, while the gross profit increased 5.5% year-over-year to $580.36 million. During the same period, the company’s adjusted EBITDA and net income increased 3.2% and 1.6% year-over-year to $118.65 million and $62 million, respectively. SFM’s EPS for the quarter increased 9.6% year-over-year to $0.57.
Analysts expect SFM sales and EPS for the fiscal year 2022 to increase 4.4% and 4.8% year-over-year to $6.37 billion and $2.20, respectively. The company’s impressive earnings history has seen it surpassing consensus EPS estimates in each of the trailing four quarters.
The stock has gained 4.1% over the past month to close the last trading session at $28.73.
SFM’s overall POWR Rating of B, which translates to a Buy, reflects this stable outlook. It has a grade of A for Quality.
It is ranked #22 of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
To see additional POWR Ratings (Growth, Value, Momentum, Stability, and Sentiment) for SFM, click here.
Universal Logistics Holdings, Inc. (ULH)
ULH is a transportation and logistics solutions provider in the United States, Mexico, Canada, and Colombia. The company operates in logistics, intermodal, trucking, and brokerage segments.
On October 27, ULH announced a cash dividend of $0.105 per share of common stock to be paid on January 3, 2023, to shareholders of record at the close of business on December 5, 2022. The company pays $0.42 annually as a dividend, translating to a yield of 1.22% at the current price. Its dividend payouts have increased at an 8.5% CAGR over the past five years.
On August 22, Southern Counties Express, Inc., a subsidiary of ULH, announced a new partnership with the International Brotherhood of Teamsters Local Unit 848. This partnership would enable ULH to provide customers with AB5-compliant and reliable services in the Los Angeles and Long Beach drayage market, advancing its capacity footprint in a changing California labor model and continuing to be a leader in the drayage space.
ULH announced its best results for the fiscal year's third quarter. The company’s operating revenue increased 13.5% year-over-year to $505.7 million, while its operating income increased 318% year-over-year to a record $69.8 million. This was primarily due to the absence of $12.9 million of pre-tax charges that dragged down the result of the third quarter of the previous fiscal.
During the third quarter, ULH’s net income increased 370.9% year-over-year to $48.5 million. This translated to a record quarterly EPS of $1.84 per share, up 384.2% year-over-year.
Analysts expect ULH’s revenue and EPS for the fiscal year 2022 to increase 15.4% and 90.3% year-over-year to $2.02 billion and $6.40, respectively. The stock has gained 7.2% over the past month to close the last trading session at $34.54.
ULH’s positive outlook is reflected in an overall rating of A, translating to a Strong Buy in our POWR Ratings system. It also has grade A for Growth and Sentiment and grade B for Value, Momentum, and Stability.
It is ranked #2 of 17 stocks in the A-rated Air Freight & Shipping Services industry.
To see all ratings for ULH, click here.
MSFT shares were trading at $223.17 per share on Wednesday afternoon, down $5.00 (-2.19%). Year-to-date, MSFT has declined -33.21%, versus a -19.30% 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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