The stock market has experienced wild swings this year amid soaring inflation, the Fed’s aggressive rate hikes, and rising odds of a recession. JPMorgan Chief, Jamie Dimon, has repeatedly highlighted the chances of the U.S. economy heading toward a recession.
He pegged the chances of a “soft landing” to be as low as 5% to 10% and expects unemployment to rise 7% nationally, compared to 3.7% now. Amid such macroeconomic and geopolitical uncertainties, the stock market has seen a broad sell-off this year.
In this scenario, value investing is gaining traction. “Value is coming up as investors look more closely at the underlying quality of the business operations of the firm. Certainly, this market is more conducive to a successful value investing strategy,” Professor Tano Santos of Columbia Business School said.
Therefore, it could be the right time to scoop up shares of fundamentally solid stocks, Microsoft Corporation (MSFT) and Danaher Corporation (DHR), which are currently trading at discounts to their historical values and are poised to deliver significant long-term returns.
Microsoft Corporation (MSFT)
Tech behemoth MSFT needs no introduction. The company develops, licenses, and supports software, services, devices, and solutions worldwide and operates through three segments Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.
On November 16, MSFT and Lockheed Martin Corporation (LMT) announced a landmark expansion of their partnership to help power the next generation of technology for the Department of Defense (DOD).
The partnership is expected to create faster, safer, and more affordable 21st Century Security solutions that infuse immersive experiences and other advanced commercial technologies into the most capable defense systems. This should be strategically beneficial for MSFT.
In the same month, MSFT announced the Microsoft Supply Chain Platform, which helps organizations maximize their supply chain data estate investment with an open approach. This should enable organizations to make the most of their existing investments by gaining insights and acting quickly and should be in demand.
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's $2.72 annual dividend yields 1.11% at the current price. The company raised its dividends for 18 consecutive years.
For the fiscal first quarter 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. Moreover, the cash and cash equivalents balance increased 19.4% year-over-year to $22.88 billion in the same period.
Street expects MSFT’s revenue for the fiscal year ending June 2023 to come in at $212.95 billion, representing an increase of 7.4% year-over-year, while the company’s EPS is expected to increase 3.5% year-over-year to $9.53. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in three of the trailing four quarters.
MSFT’s forward P/E multiple of 25.66 is 16.6% lower than its five-year average of 30.77. In terms of its forward EV/Sales, the stock is trading at 8.33x, 4.7% lower than its five-year average of 8.74x.
The stock has gained 1.2% over the past month to close the last trading session at $245.03.
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.
MSFT also has a grade of 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.
Danaher Corporation (DHR)
DHR designs, manufactures, and markets professional, medical, industrial, and commercial products and services worldwide. It operates through three segments Life Sciences; Diagnostics; and Environmental & Applied Solutions. DHR is headquartered in Washington, D.C.
Its $1.00 annual dividend yields 0.38% at its current share price. On September 13, DHR declared a $0.25 per share quarterly dividend, payable on October 28, 2022. Its dividend payouts have increased at a 12.7% CAGR over the past three years and 12% CAGR over the past five years. It has a dividend growth record of 8 consecutive years.
DHR’s sales increased 6% year-over-year to $7.66 billion in its fiscal quarter ended September 30, 2022. Its operating profit grew 53.9% from its year-ago value to $2.02 billion, while net earnings increased 35.8% year-over-year to $1.57 billion over the period. Also, its net EPS came in at $2.10, up 36.4% from the prior-year quarter.
Analysts expect DHR’s revenue for the fiscal year ending December 2022 to come in at $30.79 billion, indicating a 4.6% increase year-over-year. The company’s EPS is expected to grow 4.7% year-over-year to $10.52 in the same period. DHR also beat the consensus EPS estimates in all the trailing four quarters, which is commendable.
In terms of its forward EV/EBITDA, DHR is currently trading at 19.41x, 10% lower than its five-year average of 21.56x. Its forward EV/EBIT multiple of 24.64 is 15.7% lower than its five-year average of 29.23x.
DHR stock has gained 7.1% in price over the past month to close the last trading session at $262.04.
It is no surprise that DHR has an overall rating of A, equating to a Strong Buy in our POWR Ratings system.
DHR also has an A grade in Sentiment and a B in Quality, Value, and Stability. Among the 52 stocks in the Medical - Diagnostics/Research industry, DHR is ranked #3.
In addition to the POWR Rating grades I have just highlighted, you can see the DHR’s Momentum and Growth ratings here.
MSFT shares were trading at $246.69 per share on Wednesday morning, up $1.66 (+0.68%). Year-to-date, MSFT has declined -25.96%, versus a -14.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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