4 Stocks with Sales Growth for Solid Returns in 2023
After a highly disappointing 2022, this year has started on a solid note. All three major indexes – the Dow, the S&P 500 and the Nasdaq Composite – ended the first month of 2023 in green. But to think the macroeconomic concerns have faded is wrong. While the recent economic data point to the effectiveness of the Federal Reserve’s ultra-aggressive monetary tightening, we are still not out of the woods. The central bank is expected to keep interest rates high till inflation comes down reasonably.
This has made investors wary about entering the stock market, as higher rates will likely lead to a recession/economic slowdown in 2023. Hence, a conventional stock-picking strategy is the need of the hour. One such way is selecting stocks with steady sales growth. In this regard, stocks like Deere & Company DE, Rockwell Automation, Inc. ROK, Cboe Global Markets, Inc. CBOE and Alaska Air Group, Inc. ALK are worth considering.
While evaluating any company, revenues are often more scrutinized than earnings. This is because investors want to make sure that a business has the capability of generating more sales over time to cater to an expanding customer base. Steady or declining sales growth reflects obstacles at the company. Stagnant companies may generate profit in the near term but do not ensure enough growth to attract new investors.
Without robust revenue growth, bottom-line improvement may not be sustainable. While a company can show earnings strength by lowering costs, continued bottom-line expansion usually requires strong sales growth.
Yet, sales growth alone doesn’t show much about a company’s prospects. Hence, taking into account a company’s cash position along with its sales number can be a practical investment strategy. Substantial cash in hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments.
Selecting the Potential Winning Stocks
To shortlist stocks with impressive sales growth and a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow of more than $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for selecting stocks. Hence, we have added other factors to arrive at a winning strategy.
P/S Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.
% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company's sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs — an optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means that the company is spending wisely and is in all likelihood profitable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform, irrespective of the market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 16 stocks that qualified the screening:
Illinois-based Deere is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery under the iconic John Deere brand name. DE is currently the world leader in precision agriculture and remains focused on revolutionizing agriculture with technology.
Deere’s expected sales growth rate for 2023 is 13.5%. The stock carries a Zacks Rank #2 at present.
Rockwell Automation, based in Milwaukee, WI, provides industrial automation and information solutions worldwide. ROK has a wide network spanning more than 100 countries.
Rockwell Automation’s expected sales growth rate for fiscal 2023 is 10.9%. The stock currently carries a Zacks Rank #2.
Chicago-based Cboe is one of the largest stock exchange operators by volume in the United States and a leading market globally for ETP trading. CBOE offers trading across a diverse range of products in multiple asset classes and geographies.
Cboe’s sales are expected to rise 4.4% in 2023. The stock carries a Zacks Rank #2 at present.
Alaska Air, based in Seattle, WA, serves more than 120 cities across North America. ALK’s mainline operating fleet includes 177 B737 jet aircraft and 40 Airbus A320 family jets.
Alaska Air’s expected sales growth for 2023 is 9.8%. The company, at present, carries a Zacks Rank #2.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Deere & Company (DE) : Free Stock Analysis Report
Rockwell Automation, Inc. (ROK) : Free Stock Analysis Report
Cboe Global Markets, Inc. (CBOE) : Free Stock Analysis Report
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
To read this article on Zacks.com click here.