The recent banking crisis is fueling recession fears. Furthermore, the Fed is debating its upcoming policy decision weighing financial stability and inflation. Given an uncertain economic backdrop, quality stocks AstraZeneca PLC (AZN), Cisco Systems, Inc. (CSCO), and Ambev S.A. (ABEV) could be ideal investments for long-term investors.
But first, let’s examine the current state of the economy in detail.
The Labor Department reported that the Consumer Price Index (CPI) rose 0.4% month-over-month and 6% year-over-year in February. Even after a year of the Fed’s persistent tightening, inflation is well above its target of 2%. Furthermore, the labor market saw a surge of 311,000 job additions in February, which exceeded economists’ projections of 205,000.
PNC Financial Services (PNC) chief economist Gus Faucher said, “It's much hotter than the economy can run, and so this means the Fed is going to have to continue to hike interest rates.” He added, “And that makes a recession more likely.”
In line with expectations, the Federal Reserve raised interest rates by a quarter percentage point in today’s policy meeting, marking its ninth rate increase since March 2022. The rate hike takes the benchmark federal funds rate to a target range between 4.75%-5%.
Furthermore, the SVB (SIVB) and Signature Bank’s (SBNY) downfall, coupled with stress at Credit Suisse Group (CS) and First Republic Bank (FRC), have emerged as a fresh menace to the economy. The resulting turbulence in the banking sector further amplifies the probability of a recession.
The escalation in near-term ambiguity has compelled Goldman Sachs (GS) to adjust its recession forecasts. Jan Hatzius, GS’ chief economist, now predicts a 35% possibility of a recession within the next year, an increase from his previous estimate of 25%.
Given a volatile macroeconomic backdrop, investors could consider buying and holding fundamentally sound stocks AZN, CSCO, and ABEV for the long term. Let’s evaluate what factors make these featured stocks worthy of investment.
AstraZeneca PLC (AZN)
AZN is a science-led biopharmaceutical company headquartered in Cambridge, United Kingdom. It discovers, develops, and commercializes prescription medicines in oncology, rare diseases, and biopharmaceuticals. The company is also geared toward researching, developing, and manufacturing T-cell receptor therapeutics.
On February 24, AZN declared that it had successfully acquired CinCor Pharma, Inc. CinCor is an American clinical-stage biopharmaceutical corporation focusing on producing novel treatments for uncontrolled hypertension and chronic kidney disease. With this acquisition, AZN is anticipated to enhance its cardiorenal pipeline.
Also, on February 23, AZN and KYM Biosciences Inc. signed a global exclusive license agreement for CMG901, a potential first-of-its-kind Antibody-Drug Conjugate (ADC) that targets a highly promising therapeutic target for gastric cancer. CMG901’s addition to AZN’s growing pipeline of ADCs is expected to advance its goal of expanding treatment choices and revolutionizing outcomes for patients with gastrointestinal cancers.
AZN’s trailing-12-month gross profit margin of 80.57% is 45.1% higher than the 55.54% industry average. Likewise, its trailing-12-month EBITDA margin of 31.33% is 824.7% higher than the 3.39% industry average.
AZN’s gross profit for the fourth quarter that ended December 31, 2022, increased 12.5% year-over-year to $8.31 billion. The company's operating profit also demonstrated a remarkable improvement, standing at $1.09 billion, as opposed to an operating loss of $292 million in the prior year’s period. Moreover, the company’s EBITDA rose 35.5% from the year-ago value to $2.57 billion.
Additionally, the company’s EPS came in at $0.58, compared to a loss of $0.22 per share in the prior-year period.
The consensus revenue estimate of $45.94 billion for the fiscal year ending December 2023 reflects a 3.6% year-over-year improvement. Likewise, the consensus EPS estimate of $4.42 for the ongoing year indicates a 32.9% rise year-over-year. Moreover, the company surpassed its consensus revenue estimates in three of four trailing quarters.
Shares of AZN have gained 18.7% over the past six months to close the last trading session at $66.99.
AZN’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Stability, Growth, Quality, and Sentiment. In the 166-stock Medical - Pharmaceuticals industry, it is ranked #9.
Beyond what we stated above, we also have AZN’s ratings for Value and Momentum. Get all AZN ratings here.
Cisco Systems, Inc. (CSCO)
CSCO designs and markets an array of Internet-related technologies. The company operates through three geographic segments: the Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
On February 27, CSCO and T-Mobile US, Inc (TMUS) announced their plans to provide enterprises with CSCO Meraki’s first-ever 5G cellular gateways for fixed wireless connectivity, which should enable businesses to create rich and unique customer experiences by utilizing streamlined, scalable, and reliable network management services.
As wireless communication is the future of connectivity, pioneering the new era of 5G should provide significant benefits to CSCO.
On the same day, CSCO revealed its partnership with Mercedes-Benz to offer an outstanding mobile office experience in the brand-new Mercedes-Benz E-Class vehicles. Strategically, CSCO could benefit from addressing the needs of the ever-evolving hybrid workforce.
CSCO’s trailing-12-month gross profit margin of 61.92% is 23.4% higher than the 50.17% industry average. Furthermore, its trailing-12-month EBITDA margin and net income margin of 29.74% and 21.26% are 201.5% and 686.6% higher than the industry averages of 9.87% and 2.70%, respectively.
In the second quarter that ended on January 28, 2023, CSCO's total revenue increased by 6.9% year-over-year to $13.59 billion, while its gross margin rose by 4.7% from the year-ago figure to $8.43 billion. Also, the company's non-GAAP net income grew 2.6% year-over-year to $3.64 billion, and its non-GAAP EPS was $0.88, up 4.8% from the prior year's quarter.
Analysts expect CSCO’s EPS to increase 11.8% year-over-year to $3.75 for the fiscal year ending July 2023. The company’s revenue for the current year is expected to grow 9.7% year-over-year to $56.57 billion. Furthermore, the company topped its consensus EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 21.8% over the past six months to close the last trading session at $50.67.
CSCO’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
CSCO has an A grade for Quality and a B for Stability. It is ranked #3 out of 50 stocks in the B-rated Technology - Communication/Networking industry.
In addition to the POWR Ratings I’ve just highlighted, you can see CSCO’s ratings for Value, Growth, Sentiment, and Momentum here.
Ambev S.A. (ABEV)
ABEV, headquartered in São Paulo, Brazil, manufactures, distributes, and sells beer, draught beer, carbonated soft drinks, other non-alcoholic beverages, malt, and food products. It distributes its goods directly and through a network of independent distributors.
The stock’s trailing-12-month gross profit margin of 49.29% is 56.3% higher than the 31.54% industry average. Also, its trailing-12-month net income margin and levered FCF margin of 18.14% and 10.60 % are 393.2% and 335.8% higher than the industry averages of 3.68% and 2.43%, respectively.
During the fourth quarter that ended December 31, 2022, ABEV’s net revenue increased 3.1% year-over-year to R$22.69 billion ($4.33 billion). Its gross profit grew 1.7% from the year-ago value to R$11.71 billion ($2.23 billion), and its normalized EBITDA rose 4.8% from the prior year’s period to R$7.11 billion ($1.36 billion).
Furthermore, the company’s profit grew 35.7% year-over-year to R$5.08 billion ($969.40 million), while its EPS came in at R$0.32, representing an increase of 37.7% year-over-year.
The consensus revenue estimate of $17.70 billion for the fiscal year ending December 2024 reflects a 7.5% year-over-year improvement. Likewise, the consensus EPS estimate of $0.19 for the same year indicates a 21.4% rise from the previous year. Moreover, the company surpassed the consensus EPS estimates in all four trailing quarters.
The stock has gained 4.2% over the past month to close the last trading session at $2.63.
ABEV’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Stability and Sentiment. Within the A-rated Beverages industry, it ranks #10 of 36 stocks.
To see additional POWR Ratings for Value, Growth, and Momentum for ABEV, click here.
What To Do Next?
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What gives these stocks the right stuff to become big winners, even in this brutal stock market?
First, because they are all low priced companies with the most upside potential in today’s volatile markets.
But even more important, is that they are all top Buy rated stocks according to our coveted POWR Ratings system and they excel in key areas of growth, sentiment and momentum.
Click below now to see these 3 exciting stocks which could double or more in the year ahead.
AZN shares were trading at $66.98 per share on Wednesday afternoon, down $0.01 (-0.01%). Year-to-date, AZN has gained 0.19%, versus a 4.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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