Yahoo Finance 5 Must-Buy Corporate Bigwigs With Solid Long-Term Potential
U.S. stock markets have been fluctuating since the beginning of 2023 after an extremely volatile 2022. The two major concerns of last year, namely, a 40-year high inflation rate and the Fed’s ultra-hawkish policies in the form of decades high interest rates and tighter monetary control, are persisting in 2023.
Peak inflation seems behind us. Less-than-expected inflation rates in October and November with respect to several measures and an unexpected drop in wage rate in December and November have clearly indicated this.
The Institute of Supply Management reported that the services sector index for December plummeted to 49.6% from 56.5% in November. The consensus estimate was 55.1%. Any reading below 50% indicates a contraction in services activities. The index contracted for the first time since May 2020, at the onset of the coronavirus pandemic.
A devastated housing market owing to the high mortgage rate, disappointing retail sales in December, the peak festive season, huge inventory accumulation by several retailers and a sharp fall in U.S. manufacturing activities indicated that the U.S. economy is cooling in the desired direction of the Fed. Several U.S. corporate giants have started retrenching manpower significantly at higher levels.
However, Wall Street will remain volatile for at least the first half of this year as the Fed will continue to raise the benchmark interest rate with the terminal rate likely to go beyond 5%. At this stage it will be prudent to invest in stocks with a favorable Zacks Rank with a solid long-term potential.
Stock Selection Process
We have selected five U.S. corporate giants (market capital > $30 billion) as these companies have stable business model and globally claimed brand value. These stocks have strong long-term (3-5 years) earnings growth potential and have seen positive earnings estimate revisions in the last 60 days. Finally, each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Archer-Daniels-Midland Co. ADM has been gaining from solid demand, improved productivity and product innovations. Steady growth in the Nutrition segment of ADM, aided by significant gains in the Human and Animal Nutrition units, remains the key growth driver.
Archer-Daniels-Midland expects the nutrition segment to record operating profit growth of 20% in 2022. The company has been significantly progressing on its three strategic pillars — optimize, drive and growth.
Archer-Daniels-Midland has an expected long-term earnings growth rate of 7.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last seven days.
Arista Networks Inc. ANET develops markets and sells cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. ANET benefits from the expanding cloud networking market, driven by strong demand for scalable infrastructure. The company recently joined the Microsoft Intelligent Security Association.
Arista Networks continues to gain from solid momentum and diversification across its top verticals and product lines. It is well-poised for growth in the data-driven cloud networking business, with proactive platforms and predictive operations. ANET introduced an enterprise-grade Software-as-a-Service offering for its flagship CloudVision platform.
Arista Networks has an expected long-term earnings growth rate of 17.5%. The Zacks Consensus Estimate for current-year earnings improved 0.6% over the last 30 days.
Berkshire Hathaway Inc. (BRK.B) is one of the largest property and casualty insurance companies measured by premium volume. BRK.B’s inorganic growth story remains impressive with strategic acquisitions. A strong cash position supports earnings-accretive bolt-on buyouts and indicates Berkshire Hathaway’s financial flexibility.
Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. The non-insurance businesses of BRK.B are delivering improved results with increased revenues over the past few years. A sturdy capital level provides further impetus.
Berkshire Hathaway has an expected long-term earnings growth rate of 7%. The Zacks Consensus Estimate for current-year earnings has improved 12.3% over the last 60 days.
Philip Morris International Inc. PM has long been benefiting from its strong pricing power. Higher pricing variance was an upside to PM’s performance across most regions during the third quarter of 2022. Additionally, focus on reduced-risk products, especially IQOS has been working well for PM.
The company is witnessing a continued product mix shift from cigarettes to smoke-free products. Notably, smoke-free products generated more than 30% of the company’s net revenues in the third quarter, wherein revenues from RRPs jumped 12.9% to $2,362 million.
Philip Morris has an expected long-term earnings growth rate of 5%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days.
TransDigm Group Inc. TDG has been enjoying significant growth opportunities in the defense space, driven by the U.S. administration’s expansionary budgetary policy. TDG also boasts a solid solvency position, at least in the near term.
President Biden’s fiscal 2023 budget includes investment worth $773 billion in national security funding. This will ensure an increase of 4.1% over the previous year’s enacted amount. This enhanced budget proposal has thus boosted the possibility for renowned military jet builders and others to acquire significant defense contracts from the Pentagon, which, in turn, should benefit equipment suppliers like TDG.
TransDigm Group has an expected long-term earnings growth rate of 20.6%. The Zacks Consensus Estimate for current-year (ending September 2023) earnings has improved 12.6% over the last 60 days.
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Philip Morris International Inc. (PM) : Free Stock Analysis Report
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
Transdigm Group Incorporated (TDG) : Free Stock Analysis Report
Arista Networks, Inc. (ANET) : Free Stock Analysis Report
