At the last policy meeting, the Federal Reserve officials agreed that the central bank’s aggressive interest rate hikes need to slow. After a year of tight monetary policy, the Fed would not want to be more restrictive than necessary and tip the economy into a recession.
Simultaneously, although global economic growth is expected to be sluggish this year, it is not at imminent risk of falling into a deep recession anytime soon. J.P. Morgan predicted that after a tough first half, a Fed pivot could lead to a robust market recovery, pushing the S&P 500 to 4,200 by year-end.
Given this backdrop, growth stocks could make a comeback this year. Therefore, fundamentally strong growth stocks Raytheon Technologies Corporation (RTX), Archer-Daniels-Midland Company (ADM), and Celestica Inc. (CLS) could be ideal to buy and hold this year.
Raytheon Technologies Corporation (RTX)
RTX is an aerospace and defense company that offers systems and services for commercial, military, and government customers. The company operates through the four broad segments of Collins Aerospace Systems; Pratt & Whitney; Raytheon Intelligence & Space; and Raytheon Missiles & Defense.
On December 12, RTX announced the repurchase of up to $6 billion of its outstanding common stock. The company intends to repurchase shares from time to time. This could bolster shareholder returns.
On December 8, it was reported that Collins Aerospace, an RTX business, and its partners were awarded a contract to design and develop the next-generation spacesuit for the International Space Station. This should benefit the company.
RTX’s revenue and EBITDA grew at an 8.5% CAGR and a 6% CAGR over the past three years, respectively. Its levered FCF has grown at a 23.5% CAGR over the same period.
For the fiscal third quarter that ended September 30, 2022, RTX’s net sales increased 4.6% year-over-year to $16.95 billion. Adjusted operating profit rose 2% from the prior-year quarter to $1.99 billion. Its adjusted EPS stood at $1.21 for the same period.
The consensus EPS estimate of $1.24 for the quarter that ended December 2022 indicates a 14.8% year-over-year increase. Likewise, the consensus revenue estimate of $18.19 billion for the same quarter reflects an improvement of 6.7% from the prior-year period. Moreover, RTX surpassed consensus EPS estimates in all four trailing quarters.
The stock has gained 12.6% over the past year and 18.4% over the past three months to close its last trading session at $100.88.
RTX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RTX has a Growth grade of A and a Stability and Sentiment grade of B. In the 74-stock Air/Defense Services industry, it is ranked #13.
Click here to see the additional POWR Ratings for RTX (Value, Momentum, and Quality).
Archer-Daniels-Midland Company (ADM)
ADM procures, transports, stores, and merchandises agricultural commodities, products, and ingredients globally. The company operates through three broad segments: Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition.
On November 2, ADM declared a dividend of 40 cents per share on its common stock. The dividend was payable on December 7, 2022. This reflects the cash generation ability of the company.
Over the past three years, ADM’s revenue and net income grew at 15.4% and 51.1% CAGRs, respectively. Its EPS grew at a 51.1% CAGR over the same period.
ADM’s revenues increased 21.4% year-over-year to $24.68 billion in the fiscal third quarter that ended September 30. Adjusted net earnings and adjusted EPS came in at $1.05 billion and $1.86, up 91.2% and 91.8% from the prior-year period, respectively.
Street EPS and revenue estimates for the quarter ended December 2022 of $1.65 and $25.25 billion reflect increases of 10% and 9.3% from the prior-year period, respectively. Moreover, ADM has an impressive surprise earnings history, as it surpassed consensus EPS estimates in all four trailing quarters.
Over the past year, the stock has gained 22.8% to close its last trading session at $84.23. It has gained 16.4% over the past six months.
It’s no surprise that ADM has an overall A rating, which translates to a Strong Buy in our POWR Ratings system.
The stock has an A grade for Growth and a B for Sentiment. It is ranked #3 out of the 28 stocks in the Agriculture industry.
To see the additional POWR Ratings for Value, Momentum, Stability, and Quality for ADM, click here.
Celestica Inc. (CLS)
CLS operates as a hardware platform and supply chain solutions provider. It operates through two segments: Advanced Technology Solutions and Connectivity & Cloud Solutions. The company is headquartered in Toronto, Canada.
On October 18, CLS launched the DS1000 high-performance Gigabit Ethernet Layer 3 switch. This should benefit the company through its contribution to the OCP Enterprise Connectivity Solutions (ECS) group.
CLS’ revenue grew at 3.1% and 1.6% CAGRs over the past three and five years, respectively. Its EBITDA has grown at a CAGR of 13.9% over the past three years.
For the fiscal third quarter that ended September 30, CLS’ IFRS revenue increased 31.1% year-over-year to $1.92 billion. Non-IFRS adjusted net earnings came in at $63.60 million, while its non-IFRS adjusted earnings per share stood at $0.52, up 46.5% and 48.6% from the prior-year period, respectively.
The consensus EPS estimate of $0.54 for the quarter that ended December 2022 indicates a 22.7% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $1.97 billion reflects an improvement of 30% from the prior-year quarter. CLS topped consensus EPS estimates in each of the trailing four quarters.
Shares of CLS have gained 16.5% over the past six months and 20.6% over the past three months to close its last trading session at $10.99.
This promising prospect is reflected in CLS’ POWR Ratings. The stock's overall A rating translates to a Strong Buy in our proprietary rating system.
CLS has an A grade for Growth and a B for Value, Momentum, and Sentiment. It is ranked first out of the 79 stocks in the Technology – Services industry.
In addition to the POWR Rating grades we’ve stated above, one can see CLS’ ratings for Stability and Quality here.
RTX shares were trading at $101.62 per share on Friday afternoon, up $0.74 (+0.73%). Year-to-date, RTX has gained 0.69%, versus a 0.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
3 Growth Stocks to Buy Now and Hold All of 2023 StockNews.com
