It was a disappointing year for the stock market as most companies struggled to survive macroeconomic and geopolitical headwinds. The Nasdaq Composite has lost 28.2% year to date.
In any case, The Fed has reassessed the pace of rate hikes given the lags and uncertain magnitudes associated with the effects of monetary policy actions on economic activity and inflation. Therefore, we could see a decrease in the pressure on the stock market.
Despite the Nasdaq’s underperformance this year, its constituents PepsiCo, Inc. (PEP) and O’Reilly Automotive Inc. (ORLY) outperformed due to solid fundamentals and solid growth prospects.
Despite fears of an impending recession, PEP and ORLY could be favorable investments for investors given their financial strength and growth prospects. On the other hand, it might be wise to avoid Marvell Technology, Inc. (MRVL) due to weak fundamentals and poor growth prospects.
Stocks to buy:
PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes and sells various beverages and convenience foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin america; Europe; Africa, Middle East and South Asia; and the Asia Pacific region, Australia and New Zealand and China.
Over the past three years, PEP’s dividend payouts have grown at a 5.7% CAGR. Its four-year average dividend yield is 2.80%, and its forward annual dividend of $4.60 per share translates to a yield of 2.50%. It expects to pay a quarterly dividend of $1.15 per share on Jan 6, 2023.
On September 14, 2022, ADM (ADM) and PEP announced a 7.5-year strategic commercial agreement to collaborate closely on projects aimed at expanding regenerative agriculture.
Chief Sustainability Officer at PEP, Jim Andrew, believes this partnership will help PEP reach nearly a third of its goal of reducing carbon emissions to 7 million acres by 2030. He hopes strategic partnerships like this will strengthen the means to livelihood and resilience PEP for farmers work together, building a more sustainable future together.
PEP’s net income for the third quarter ended September 3, 2022, increased 8.8% year-over-year to $21.97 billion. The company’s non-GAAP operating profit rose 10.9% year-over-year to $3.60 billion, while non-GAAP net income attributable to PEP rose 10% year-over-year to 2.73 billion USD. It is also adjusted EPS up 10% year-over-year to $1.97.
Analysts expect PEP’s EPS and revenue for the quarter ended December 31, 2022 to grow 7.2% and 5.3% year-over-year to $1.64 and $26.59 billion, respectively. The company has a commendable history of surprising earnings, beating consensus EPS estimates in each of the past four quarters. The stock has gained 12.4% over the past year and 6% year-to-date to close the last trading session at $184.11.
The strong fundamentals of PEP are reflected in it POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. POWR’s ratings evaluate stocks against 118 different factors, each with its own weighting.
It is ranked 10th out of 34 A stocks beverages industry. It is graded A for Quality and B for Growth, Stability and Feeling.
I also gave PEP grades for Value and Momentum. Get all PEP ratings Here.
O’Reilly Automotive, Inc. (ORLY)
ORLY operates as a retailer and supplier of auto parts, tools, supplies, equipment and accessories. The company provides new and remanufactured hard parts, maintenance and auto accessories. It also offers body paint and related materials, automotive tools, and professional service provider service equipment.
For the fiscal third quarter ended September 30, 2022, ORLY’s sales increased 9.2% year over year to $3.80 billion. The company’s gross profit rose 6.4% year over year to $1.93 billion. Its net income rose 4.8 percent from the year-ago period to $585.44 million. Additionally, its EPS was $9.17, representing a 13.6% increase over the prior-year quarter.
ORLY’s EPS and revenue for the quarter ending December 31, 2022 are expected to grow 1.2% and 6.4% year-over-year to $7.73 billion and $3.50 billion, respectively. The stock gained 21.2% year-to-date and 32.4% over the past year to close the last trading session at $855.97.
It’s no surprise that ORLY has an overall rating of B, which translates to a Buy in our proprietary rating system. It is ranked 13th out of 63 B stocks Auto parts industry. It has an A for Quality and a B for Feeling.
Click here to see additional ORLY ratings for Growth, Value, Momentum and Stability.
Stock to avoid:
Marvell Technology, Inc. (MRVL)
MRVL designs, develops and sells analog, mixed-signal, digital signal processing and integrated and stand-alone integrated circuits. It offers a portfolio of Ethernet solutions, single and multi-core processors, ASICs and System-on-a-Chip printer products and application processors. The company also offers a range of storage products.
MRVL’s total non-GAAP operating expenses for the fiscal second quarter ended July 30, 2022, increased 17.8% year-over-year to $431.60 million. The company’s total liabilities rose 3.5% to $6.63 billion, compared to $6.40 billion for the fiscal year ending Jan. 29, 2022.
The stock is down 50.9% year-to-date and 41.8% over the past year to close the last trading session at $42.98.
MRVL’s gloomy outlook is reflected in its POWR ratings. The company has an overall rating of D, which equates to a sell in our proprietary rating system. It is ranked 80 out of 93 stocks in Semiconductor and wireless chip industry. In addition, it has a grade of D for Stability and Quality.
In total, we evaluate MRVL on eight different levels. Beyond what we have stated above, we have also given MRVL ratings for Growth, Value, Momentum and Sentiment. Get all MRVL ratings Here.
PEP stock was trading at $184.73 per share on Monday morning, up $0.62 (+0.34%). Year-to-date, PEP has gained 8.51%, compared to a -15.11% gain in the benchmark S&P 500 over the same period.
About the Author: Malaika Alphonsus
Malaika’s passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More…