The past year has been challenging for investors as the economy faced significant headwinds due to geopolitical issues, persistent inflation, and aggressive interest rate hikes. However, the Commerce Department reported that the fourth quarter Gross Domestic Product (GDP) rose at a 2.9% annualized pace, more than expected by economists.
Since last year, the Fed’s interest rate hikes have helped cool the runaway inflation. Prices eased for the sixth consecutive month in December, with the Consumer Price Index (CPI) rising 6.5% year-over-year and declining 0.1% sequentially.
The Federal Reserve raised the short-term interest rates by a quarter of a percentage point last week, bringing the benchmark rate to a new range of 4.5% and 4.75%, the highest level since October 2007. Fed Chairman Jerome Powell sounded optimistic about inflation as he acknowledged that the disinflationary process has started.
Although the Fed still sees the need for “ongoing increases in the target range,” the central bank might stop the rate increases before the expected target range of 5.25% to 5.5%, depending on inflation and labor data for the next couple of months.
Amid this backdrop, it could be wise for investors to add fundamentally strong growth stocks ADT Inc. (ADT), Rambus Inc. (RMBS), The ODP Corporation (ODP), and Celestica Inc. (CLS) to their watchlist.
ADT Inc. (ADT)
ADT provides security, automation, and smart home solutions to consumer and business customers. It provides a range of fire detection, fire suppression, video surveillance, and access control systems to residential, commercial, and multi-site customers.
On October 13, 2022, ADT announced that it had issued and sold in a private placement to State Farm 133.30 million shares of ADT common stock. Apart from the equity investment, State Farm has committed to put $300 million to fund product and technology innovation, customer growth, and marketing activities relating to the partnership.
In terms of the trailing-12-month gross profit margin, ADT’s 68.56% is 93.6% higher than the 35.41% industry average. Its trailing-12-month EBITDA margin of 37.65% is 239.5% higher than the 11.09% industry average. Likewise, its 11.88% trailing-12-month levered FCF margin is 776.4% higher than the industry average of 1.36%.
ADT’s total revenue for the fiscal third quarter that ended September 30, 2022, increased 21.8% year-over-year to $1.60 billion. The company’s adjusted net income came in at $83 million, compared to an adjusted net loss of $54 million in the prior-year period.
Additionally, its adjusted EBITDA increased 11.9% year-over-year to $620 million, while its adjusted EPS came in at $0.10, compared to an adjusted loss per share of $0.07 from the prior-year quarter. ADT’s revenue grew at a CAGR of 6.9% over the past three years. Its EBIT grew at a CAGR of 18% over the past three years.
Analysts expect ADT’s revenue and EPS for the quarter that ended December 31, 2022, to increase 17.4% and 700% year-over-year to $1.62 billion and $0.18, respectively. Over the past nine months, the stock has gained 21.1% to close the last trading session at $8.48.
ADT’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Home Improvement & Goods industry, it is ranked #4 out of 60 stocks. The company has an A grade for Growth and a B for Stability and Sentiment.
Click here to see the additional POWR Ratings of ADT (Value, Momentum, and Quality).
Rambus Inc. (RMBS)
RMBS provides semiconductor products worldwide. The company offers DDR memory interface chips, OEMs, silicon IP comprising, interface and security IP solutions, and physical interface and digital controller IP to offer industry-leading, integrated memory, and interconnect subsystems.
In terms of the trailing-12-month gross profit margin, RMBS’ 81.62% is 66.8% higher than the 48.94% industry average. Its 4.46% trailing-12-month Capex/Sales is 76% higher than the 2.53% industry average. Likewise, its 18.15% trailing-12-month EBIT margin is 208.5% higher than the industry average of 5.88%
On October 31, 2022, RMBS announced the extension of its comprehensive patent license agreement with Samsung Electronics for an additional ten years. RMBS’ president and CEO, Luc Seraphin, said, “This extension enables deeper collaboration to deliver even greater value to the industry, and we are excited to continue working with such an innovative industry leader.”
For the fiscal third quarter that ended September 30, 2022, RMBS’ total revenue gained 38.1% year-over-year to $112.24 million. The company’s gross profit increased 35.6% year-over-year to $85.26 million. Its operating income increased 260.4% year-over-year to $16.92 million. Its net income and EPS came in at $939 thousand and $0.01, respectively. RMBS’ revenue grew at a CAGR of 22.2% over the past three years.
Analysts expect RMBS’ revenue for the quarter that ended December 31, 2022, to increase 21.1% year-over-year to $151.93 million. Its EPS for the fiscal year 2022 is expected to increase 16.8% year-over-year to $1.75. Over the past nine months, the stock has gained 66.2% to close the last trading session at $43.62.
RMBS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #29 out of 92 stocks. It has an A grade for Growth and a B for Sentiment and Quality.
We have also given RMBS grades for Value, Momentum, and Stability. Get all RMBS ratings here.
The ODP Corporation (ODP)
ODP provides business services and supplies, products, and digital workplace technology solutions for small, medium, and enterprise businesses. The company operates in two divisions, Business Solutions; and Retail.
On January 6, 2023, HCLTech, announced that ODP had selected the company as its primary IT partner to support its business strategy. ODP’s CEO, Gerry Smith, believes that HCLTech’s extensive IT expertise provides greater agility and differentiated IT capabilities to help accelerate ODP’s transformation and positions it to expand services to its customers.
In terms of the trailing-12-month levered FCF margin, ODP’s 5.43% is 300.2% higher than the 1.36% industry average. Its 6.59% trailing-12-month Return on Total Capital is 3.3% higher than the 6.38% industry average. Likewise, its 1.73x trailing-12-month asset turnover ratio is 70.4% higher than the industry average of 1.01x.
ODP’s total liabilities for the fiscal third quarter that ended September 24, 2022, declined 14.8% to $2.92 billion, compared to $3.43 billion for the fiscal year that ended December 25, 2021. Its adjusted free cash flow increased 30.1% year-over-year to $160 million. Additionally, its EPS came in at $1.36, representing a 2.3% increase from the prior-year quarter.
Analysts expect ODP’s EPS and revenue for the quarter that ended December 2022 to increase 10.7% and 4.6% year-over-year to $0.79 and $2.14 billion, respectively.
It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 44.5% over the past six months to close the last trading session at $52.59.
It is no surprise that ODP has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It is ranked first out of 45 stocks in the Specialty Retailers industry. The company has an A grade for Growth and Quality and a B for Value.
Click here to see the POWR Ratings of ODP for Momentum, Stability, and Sentiment.
Celestica Inc. (CLS)
Headquartered in Toronto, Canada, CLS provides hardware platform and supply chain solutions in North America, Europe, and Asia. It operates through two segments, Advanced Technology Solutions and Connectivity & Cloud Solutions.
In terms of the trailing-12-month ROCE, CLS’ 9.27% is 85.2% higher than the 5% industry average. Likewise, its 1.41x trailing-12-month asset turnover ratio is 125.8% higher than the industry average of 0.62x.
CLS’ revenue increased 35.1% year-over-year to $2.04 billion for the fourth quarter that ended December 31, 2022. The company’s gross profit increased 31% year-over-year to $186.20 million.
Its adjusted net earnings for the period increased 23.9% year-over-year to $68.40 million. In addition, its adjusted EPS came in at $0.56, representing a 27.3% increase from the prior-year quarter.
CLS’ revenue grew at a CAGR of 7.2% over the past three years. Its EBITDA grew at a CAGR of 20.9% over the past three years. Moreover, its EBIT grew at a CAGR of 39.5% in the same time frame.
CLS’ EPS and revenue for the quarter ending March 31, 2023, are expected to increase 14.8% and 15.1% year-over-year to $0.45 and $1.80 billion, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 30.8% over the past three months to close the last trading session at $13.68.
CLS’ strong outlook is reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. Within the Technology - Services industry, it is ranked first out of 79 stocks. The company has an A grade for Growth, Value, and Momentum and a B for Sentiment.
To see the additional ratings of CLS for Stability and Quality, click here.
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ADT shares were trading at $8.39 per share on Monday afternoon, down $0.09 (-1.06%). Year-to-date, ADT has declined -7.50%, versus a 7.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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