The stock market will likely undergo high volatility in the upcoming months as Fed Chairman Jerome Powell cautioned that interest rates would probably be higher than expected. However, that should not deter long-term investors from buying high-quality stocks, such as Visa Inc. (V), Novo Nordisk A/S (NVO), and Autodesk, Inc. (ADSK), given their strong fundamentals and solid growth prospects.
Before we delve deeper into the fundamentals of these stocks, let’s discuss the factors that could keep the stock market under pressure this year.
The annual inflation rate in the U.S. slowed slightly to 6.4% in January, marking the seventh straight month of fall in annual inflation. However, inflation rose 0.5% sequentially in the month, marking the fastest monthly gain since October 2021. Moreover, the Personal Consumption Expenditure (PCE) increased 0.6% for the month and 4.7% year-over-year.
The Federal Reserve closely tracks the PCE to gauge inflation, and the annual and sequential rise in PCE indicates that the central bank has to work harder to bring inflation down to its long-term target. In addition, the jobs market is expected to remain tight, with private payrolls increasing by 242,000 in February versus the estimate of 205,000 and 119,000 in January.
Earlier this week, Fed Chair Jerome Powell said, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he added.
With further interest rate hikes in sight, the economy is likely to enter a recession this year. This could keep the stock market highly volatile in the upcoming months.
Amid this backdrop, let’s evaluate why investing in high-quality stocks V, NVO, and ADSK could be wise.
Visa Inc. (V)
V is a global payments technology company that enables digital payments between customers, merchants, financial institutions, enterprises, strategic partners, and government agencies. It also administers VisaNet, a transaction processing network that allows for the authorization, clearing, and settlement of payment transactions.
On December 14, 2022, V pledged to invest $1 billion in Africa over the next five years to advance resilient, innovative, and inclusive economies across the continent. V’s entry into Africa will help capitalize on the rise in digital payments.
V’s 50.28% trailing-12-month net income margin is significantly higher than the 2.92% industry average. Likewise, its 67.14% trailing-12-month EBIT margin is considerably higher than the 5.88% industry average. Furthermore, the stock’s 50.02% trailing-12-month levered FCF margin is 634.2% higher than the 6.81% industry average.
V’s net revenues for the first quarter ended December 31, 2022, increased 12% year-over-year to $7.94 billion. The company’s operating income rose 6.6% year-over-year to $5.09 billion. Its non-GAAP net income increased 17% from the prior-year period to $4.58 billion. In addition, its non-GAAP EPS came in at $2.18, representing an increase of 21% year-over-year.
Analysts expect V’s EPS and revenue for the quarter ending March 31, 2023, to increase 10.3% and 7.9% year-over-year to $1.98 and $7.76 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 15.9% to close the last trading session at $222.19.
V’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Consumer Financial Services industry, it is ranked #7 out of 50 stocks. It has an A grade for Quality and a B for Stability and Sentiment. Click here to see the other Growth, Value, and Momentum ratings.
Novo Nordisk A/S (NVO)
Denmark-based NVO is a global healthcare company engaged in diabetes care. It is the world’s biggest producer of diabetes drugs and operates in diabetes and obesity care and biopharmaceutical segments. Also, it is engaged in the discovery, development, manufacturing, and marketing of pharmaceutical products.
On November 22, 2022, NVO announced plans to invest Kr.5.40 billion to expand its existing facilities in Bagsværd. Its plans include the construction of a new plant. The investment will establish additional capacity in R&D to manufacture active pharmaceutical ingredients (API) for supplying to its global clinical trials.
NVO’s Senior VP of CMC Development, Jesper Bøving, said, “This investment in expanding our clinical API capacity in Bagsværd is an important step to ensure the continuous progress of our development pipeline. Increasing our API capacity in R&D will be a key enabler in bringing new innovations to the market and meet the future demand of our patients.”
NVO’s 83.92% trailing-12-month gross profit margin is 51.3% higher than the 55.48% industry average. Likewise, its 45.73% trailing-12-month EBITDA margin is significantly higher than the 3.56% industry average. Furthermore, the stock’s 0.81x trailing-12-month asset turnover ratio is 137% higher than the 0.34x industry average.
NVO’s net sales increased 25.5% year-over-year to Kr.48.09 billion ($6.81 billion) for the fourth quarter ended December 31, 2022. Its operating profit rose 25.3% from the prior-year period to Kr.17.09 billion ($2.42 billion). The company’s net profit increased 24.8% year-over-year to Kr.13.59 billion ($1.93 billion). In addition, its EPS came in at Kr.6.02, representing an increase of 26.5% year-over-year.
Analysts expect NVO’s EPS and revenue for the quarter ending March 31, 2023, to increase 21.6% and 15% year-over-year to $1.07 and $6.90 billion, respectively. Over the past year, the stock has gained 38.3% to close the last trading session at $141.46.
NVO’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value, Stability, and Sentiment. It is ranked first out of 169 stocks in the Medical – Pharmaceuticals industry. Click here to see the other ratings of NVO for Growth and Momentum.
Autodesk, Inc. (ADSK)
ADSK provides 3D design, engineering, and entertainment software and services worldwide. The company offers AutoCAD Civil 3D, BIM 360, AutoCAD, and AutoCAD LT, among other software and tools.
In terms of the trailing-12-month gross profit margin, ADSK’s 91.57% is 87.1% higher than the 48.94% industry average. Its 28.53% trailing-12-month levered FCF margin is 318.7% higher than the 6.81% industry average. Likewise, its 8.72% trailing-12-month Return on Total Assets is 466.3% higher than the industry average of 1.54%.
ADSK’s total net revenue for the fourth quarter ended January 31, 2023, increased 8.8% year-over-year to $1.32 billion. The company’s gross profit increased 8.6% year-over-year to $1.19 billion. Its non-GAAP income from operations increased 13.8% from the year-ago value to $479.00 million.
In addition, its net income rose 229.2% from the prior-year period to $293 million. Moreover, its non-GAAP EPS came in at $1.86, representing a 24% increase from the prior-year quarter.
ADSK’s EPS and revenue for the quarter ending April 30, 2023, are expected to increase 8.7% and 8.4% year-over-year to $1.55 and $1.27 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 9.4% year-to-date to close the last trading session at $204.51.
ADSK’s POWR Ratings reflect this positive outlook. ADSK has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #11 out of 136 stocks in the Software - Application industry. It has an A grade for Quality and a B for Growth. To see the other ratings of ADSK for Value, Momentum, Stability, and Sentiment, 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?
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V shares were unchanged in premarket trading Thursday. Year-to-date, V has gained 7.15%, versus a 4.31% 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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