The Federal Reserve announced another 75 basis-point interest rate hike on Wednesday. Moreover, the central bank officials hinted at continuing with its aggressive stance at the risk of a possible recession until inflation comes down to its target level.
The Fed’s aggressive stance has led to many economists predicting a recession by next year. Bridgewater Associates founder Ray Dalio sees the early signs of a recession. He expects more pain for the U.S. economy over the next two years.
On the bright side, Morgan Stanley (MS) strategist Andrew Slimmon expects the S&P 500 to bounce back and end the year close to where it started at around 4,778 marks, as inflation is believed to have hit a high in July.
Given this backdrop, we believe fundamentally sound stocks Oracle Corporation (ORCL) and Kronos Worldwide, Inc. (KRO) might be solid buys now. However, given the uncertainties ahead, Avaya Holdings Corp. (AVYA) might be best avoided, given its weak fundamentals and bleak growth prospects.
Stocks to Buy:
Oracle Corporation (ORCL)
ORCL offers products and services for enterprise IT environments, including applications, platforms, and infrastructure. The company offers its cloud, license, hardware, support, and services offerings directly to businesses in various industries.
On September 20, ORCL announced the availability of Java 19, the latest version of the programming language and development platform. The Java ecosystem is expected to be able to meet developer and enterprise needs better through the update.
On September 13, ORCL announced the opening of the first Oracle Cloud Infrastructure region in Spain to meet enterprise demand for cloud services in the country. The new expansion should help bolster the company’s global footprint.
On September 16, ORCL declared a quarterly cash dividend of $0.32 per share of outstanding common stock. This dividend is payable to stockholders on October 25, 2022. This reflects upon the shareholder return ability of the company.
For the fiscal first quarter ended August 31, 2022, ORCL’s total revenue increased 17.7% year-over-year to $11.45 billion. Its non-GAAP operating income increased 3.3% year-over-year to $4.48 billion. The company’s net cash provided by operating activities rose 18.6% from its previous-year quarter to $6.39 billion, while non-GAAP EPS amounted to $1.03.
The consensus revenue estimate of $49.48 billion for the fiscal year ending May 2023 represents a 16.6% increase from the same period last year. The consensus EPS estimate of $4.96 for the same year represents a 1.2% improvement year-over-year.
The stock declined 2% intraday to close the last trading session at $66.75.
ORCL’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Sentiment and Quality. Within the Software – Application industry, it is ranked #22 out of 149 stocks.
In addition to the POWR Rating grades I’ve just highlighted, you can see the ORCL ratings for Growth, Value, Momentum, and Stability here.
Kronos Worldwide, Inc. (KRO)
KRO produces and sells titanium dioxide pigments (TiO2) under the KRONOS brand, which is a base industrial product used for diverse applications. In addition, the company provides technical services for its products.
On August 3, KRO declared a regular quarterly dividend of $0.19 per share on its common stock, which was payable to stockholders on September 15, 2022. This reflects the good liquidity position of the company.
KRO’s net sales increased 18.1% year-over-year to $565.30 million during the second quarter of 2022 ended June 30. The company’s income from operations increased 48.9% from the year-ago value to $65.20 million. Net income came in at $45.90 million, up 78.6% year-over-year. The income per share rose 81.8% from the previous-year quarter to $0.40.
Analysts expect KRO’s revenue for the third fiscal quarter to be $537.51 million, indicating a 7.5% year-over-year growth. The company’s EPS for the same period is expected to increase 14.9% year-over-year to $0.36. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
KRO has dipped 2% intraday to close its last trading session at $11.31.
It is no surprise that KRO has an overall A rating, which translates to Strong Buy in our POWR Ratings system.
KRO also has an A grade for Value and a B for Stability and Quality. It is ranked #4 out of 88 stocks in the B-rated Chemicals industry.
Beyond what we’ve stated above, we have also given KRO grades for Growth, Momentum, and Sentiment. Get all KRO ratings here.
Stock to Avoid:
Avaya Holdings Corp. (AVYA)
AVYA provides digital communications products, solutions, and services through its subsidiaries for businesses worldwide. The company operates through two segments: Products & Solutions and Services.
On August 16, AVYA reported that it had received a notice from the New York Stock Exchange, notifying the company of its failure to file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. The company has been granted a six-month deadline to file the report.
During the third fiscal quarter that ended June 30, 2022, AVYA’s revenue decreased 21.2% year-over-year to $577 million. Its non-GAAP gross profit fell 25.2% from the prior-year period to $220 million. The company’s non-GAAP net income declined 127.4% year-over-year to a negative $20 million. The company’s non-GAAP income per share decreased 132% from its prior-year quarter to a negative $0.24.
AVYA’s revenue is expected to decline 21.3% from its prior-year quarter to $598.40 million for its fourth quarter ending September. Its EPS is estimated to be negative $0.26, decreasing 133.8% year-over-year.
The stock has plunged 91.5% year-to-date to close the last trading session at $1.69. Also, it has lost 53.8% over the past three months.
AVYA’s POWR Ratings reflect this bleak outlook. The stock has an overall grade of D, translating to a Sell in our proprietary rating system.
It has an F grade for Sentiment and a D for Growth, Momentum, Stability, and Quality. Within the Technology-Communication/Networking industry, it is ranked #48 of 50 stocks. To see additional POWR Ratings for AVYA, click here.
ORCL shares were trading at $66.03 per share on Thursday afternoon, down $0.72 (-1.08%). Year-to-date, ORCL has declined -23.37%, versus a -20.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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