The Federal Open Market Committee (FOMC) has raised rates at a breakneck pace this year. After slashing 150 basis points between February and April 2020 amid the COVID-19 pandemic, they stayed near zero through 2021. However, the current target rate is 4.25% to 4.5%, and more increases are expected in 2023.
This followed as the U.S. inflation far outpaced the Fed’s typical 2% target since early 2021 and continued to rise through the year into 2022 when it peaked at 9.1% in June. Though inflation has eased somewhat in the last few months, it is still substantially high. The Fed does not expect rates to return to the neutral benchmark of 2.5% until 2025.
Moreover, as layoff announcements are mounting, some economists see the potential for declines in employment next year. The Fed has predicted in its economic forecast that the unemployment rate would increase to 4.6% by the end of next year, higher than the current 3.7%. This has fueled widespread recessionary fears in the economy.
Given this backdrop, it could be wise to invest in stocks that are currently on Wall Street’s radar, Broadcom Inc. (AVGO), Fortinet, Inc. (FTNT), and Advanced Energy Industries, Inc. (AEIS), considering their fundamental strength.
Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies a range of semiconductor devices focusing on complex and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products. It operates through two segments: semiconductor solutions and infrastructure software.
On December 15, AVGO announced the availability of a new solution that provides secure, cost-effective mainframe data storage options for hybrid IT environments, making it possible for customers to achieve dramatic cost savings and protect against ransomware. This might be beneficial for the company.
AVGO’s net revenue increased 20.6% year-over-year to $8.93 billion in the fourth quarter that ended October 30, 2022. Its adjusted EBITDA rose 25.8% year-over-year to $5.72 billion. The company’s non-GAAP net income increased 29.8% from its year-ago quarter to $4.54 billion, while its non-GAAP EPS came in at $10.45, indicating a 33.8% year-over-year increase.
The consensus revenue estimate of $8.90 billion for the fiscal first quarter ending January 2023 represents a 15.5% increase from the same quarter last year. Similarly, the company’s consensus EPS estimate of $10.18 for the same quarter represents a 21.4% year-over-year growth. Additionally, the company has an excellent earnings surprise history as it has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Among the 12 Wall Street analysts rating AVGO, 11 have rated it Buy. The 12-month median price target of $654.73 indicates a 20.2% potential upside, and its price targets range from a low of $555.00 to a high of $775.00.
Over the past three months, the stock has gained 16.9% to close the last trading session at $544.89.
AVGO’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and is ranked #15 out of 92 stocks within the Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings just highlighted, one can see AVGO’s Momentum, Growth, Stability, Value, and Sentiment ratings here.
Fortinet, Inc. (FTNT)
FTNT offers comprehensive, integrated, and automated cybersecurity solutions worldwide. It provides FortiGate hardware and software licenses for various security and networking services.
On December 14, FTNT announced that five new managed security service providers (MSSP) had adopted Fortinet Secure SD-WAN to help drive better business outcomes and experiences for their customers. MSSPs continue to rely on Fortinet Secure SD-WAN to deliver flexible, on-demand access to business-critical applications, whether they’re deployed in the cloud, the data center, or on-premises.
On November 28, FTNT announced the availability of FortiGate Cloud-Native Firewall (FortiGate CNF) on Amazon Web Services to simplify, scale, and modernize security operations.
As a managed next-generation firewall service, FortiGate CNF removes the heavy lifting around network security operations and provides a frictionless experience to help customers easily deploy best-in-class security on the cloud. FTNT is constantly evolving its services amid the growing competition in the industry.
During the third quarter ended September 30, 2022, FTNT’s revenue increased 32.6% year-over-year to $1.15 billion. Its non-GAAP operating income grew 45.3% year-over-year to $324.90 million.
Moreover, the company’s non-GAAP net income attributable to FTNT grew 58.3% from the year-ago value to $262.70 million, while its non-GAAP net income per share attributable to FTNT grew 65% from the prior-year quarter to $0.33.
Street expects FTNT’s revenue and EPS to rise 32.6% and 44.4% year-over-year to $4.43 billion and $1.15, respectively, in the current fiscal year ending December 2022. Also, FTNT has topped Street EPS and revenue estimates in each of the trailing four quarters.
Of the 15 Wall Street analysts rating FTNT, 14 have rated it Buy. The 12-month median price target of $65.67 indicates a 37.2% potential upside. The price targets range from a low of $57.00 to a high of $85.00.
The stock declined 1.4% intraday, closing the last trading session at $47.86.
It is no surprise that FTNT has an overall rating of B, which translates to a Buy in our POWR Ratings system.
It also has an A grade for Quality and Sentiment and a B for Growth. The stock ranked at the top of the 22 Software – Security industry stocks.
Click here to see the additional POWR Ratings for Value, Momentum, and Stability for FTNT.
Advanced Energy Industries, Inc. (AEIS)
AEIS designs, manufactures, sells, and supports precision power conversion, measurement, and control solutions worldwide. It offers plasma power solutions, including direct current (DC), pulsed DC, low-frequency alternating current, high voltage, radio frequency (RF) power supplies, and RF power supplies.
On December 6, AEIS announced the company’s first non-isolated bus converter in industry-standard quarter-brick format for 48 V power conversion in compute and telecom applications. The combination of ultra-high-efficiency operation, thermally optimized design, and digital control addresses the growing demand for 48 V power conversion solutions in data center and enterprise computing systems.
On November 15, AEIS introduced the Excelsys FC1500, the industry’s first fully integrated capacitor charger and multiple output power supply that delivers constant charge power and eliminates the need for multiple power supplies in the medical laser and Intense Pulsed Light therapy equipment.
Conor Duffy, vice president of marketing, medical power products of the company, said, “This unique solution provides many benefits, including a 30% reduction in size, reduced weight, improved reliability, lower EMI, and simplified safety certification and compliance. In addition, high levels of configurability ensure optimum solutions for any given design.”
On November 9, AEIS declared a quarterly cash dividend of $0.10 per share, payable on December 2, 2022. Its annual dividend of $0.40 yields 0.48% on the current market price, which is more than its four-year average dividend yield of 0.17%.
AEIS’ net sales increased 49.2% year-over-year to $516.27 million for the third quarter ended September 30, 2022. Its non-GAAP operating income rose 127% from its prior-year quarter to $93.64 million, while its gross profit grew 59.3% year-over-year to $191.22 million. In addition, the company’s non-GAAP per share earnings grew 138.2% year-over-year to $2.12.
Analysts expect AEIS’ revenue to increase 25.7% year-over-year to $1.83 billion in the current fiscal year ending December 2022. The company’s EPS is expected to grow 34.6% year-over-year to $6.43 in the current year. In addition, the stock has surpassed the consensus EPS and revenue estimate in each of the trailing four quarters.
Four out of the six Wall Street analysts rating AEIS have rated it Buy. Its price targets range from a low of $68.00 to a high of $95.00, and its 12-month median price target of $87.67 indicates a 5.6% potential upside.
Over the past six months, the stock has gained 12.8%, closing its last trading session at $82.75.
AEIS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
It also has a B grade for Growth, Value, and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #4 out of 92 stocks.
To access additional POWR Ratings for Momentum, Sentiment, and Stability for AEIS, click here.
AVGO shares rose $6.60 (+1.21%) in premarket trading Thursday. Year-to-date, AVGO has declined -14.45%, versus a -18.77% 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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