This year, the stock market has experienced heightened volatility due to various macroeconomic and geopolitical concerns. The Fed’s aggressive rate hikes to control the high inflation has affected investor sentiment.
However, the rate hikes seem to be showing their effect as inflation eased slightly in October. Economists expect November’s inflation numbers to reflect further easing.
The central bank officials have indicated that the Fed will slow down the magnitude of rate hikes this month and after that. Therefore, many economists expect a mild recession next year.
According to the UCLA Anderson Forecast, economists expect the economy to end the last quarter on a strong note, buoyed by consumption and business investment. Moody’s Analytics Chief Economist Mark Zandi believes that the U.S. economy will narrowly escape a recession as inflation is easing and consumers are still spending.
Given this backdrop, it could be wise for investors to buy fundamentally strong stocks with solid growth prospects, such as Cisco Systems, Inc. (CSCO) and Molina Healthcare, Inc. (MOH).
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells internet protocol-based networking and other products across networking, security, collaboration, applications, and the cloud. The company operates through three geographic segments: the Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
On October 5, 2022, CSCO announced an expansion of its existing SD-WAN partnership with Microsoft (MSFT) to allow customers to sidestep the public internet and MPLS to send their Cisco SD-WAN traffic over the latter’s Azure cloud backbone. This is expected to add value by providing speed and cost benefits.
CSCO’s total revenue increased 5.7% year-over-year to $13.63 billion for the first quarter ended October 29, 2022. The company’s non-GAAP net income increased 2.1% year-over-year to $3.55 billion. Its non-GAAP EPS came in at $0.86, representing an increase of 4.9% year-over-year. In addition, its non-GAAP operating income increased 1.1% year-over-year to $4.33 billion.
In terms of the trailing-12-month net income margin, CSCO’s 22% is 582.7% higher than the 3.22% industry average. Likewise, its 26.97% trailing-12-month EBIT margin is 307.3% higher than the industry average of 6.62%. Furthermore, the stock’s 20.23% trailing-12-month levered FCF margin is 170.4% higher than the industry average of 7.48%.
Analysts expect CSCO’s EPS and revenue for the quarter ending January 31, 2022, to increase 1.8% and 5.4% year-over-year to $0.86 and $13.41 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 10.1% to close the last trading session at $49.30.
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Stability. It is ranked #3 out of 48 stocks in the Technology – Communication/Networking industry. Click here to see the other ratings of CSCO for Growth, Value, Momentum, and Sentiment.
Molina Healthcare, Inc. (MOH)
MOH offers managed healthcare services under Medicaid and Medicare programs and through state insurance marketplaces. The company operates through four segments: Medicaid; Medicare; Marketplace; and Other.
On October 3, 2022, MOH announced the closure of its acquisition of AgeWell New York’s Medicaid Managed Long Term Care (MLTC) business. As of September 30, 2022, AgeWell’s MLTC business served approximately 13,000 members. This is expected to have a positive impact on MOH’s topline.
For the fiscal third quarter ended September 30, 2022, MOH’s total revenue increased 12.6% year-over-year to $7.93 billion. Its operating income increased 51.6% year-over-year to $335 million. The company’s adjusted net income increased 54.9% year-over-year to $254 million. In addition, its adjusted EPS came in at $4.36, representing an increase of 54.1% year-over-year.
In terms of the trailing-12-month net income margin, MOH’s 2.77% compares to the negative industry average. Likewise, its 4.76% trailing-12-month EBITDA margin is 27.6% higher than the industry average of 3.73%. Furthermore, the stock’s 2.54% trailing-12-month asset turnover ratio is 642.5% higher than the industry average of 0.34%.
For the quarter ending December 31, 2022, MOH’s EPS and revenue are expected to increase 40% and 6.2% year-over-year to $4.03 and $7.87 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 27.7% to close the last trading session at $353.06.
MOH’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. Within the A-rated Medical – Health Insurance industry, it is ranked #4 out of 11 stocks. Click here to see the other MOH ratings for Momentum, Stability, and Sentiment.
CSCO shares rose $0.11 (+0.22%) in premarket trading Tuesday. Year-to-date, CSCO has declined -19.76%, versus a -15.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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