Despite eased inflation, the robust jobs report raised the prospect of progressive rate hikes. With anxiety escalating about the possibility of a Fed-induced recession, the market volatility is expected to remain elevated in the near future. Hence, investors could consider fundamentally sound and stable stocks Novartis (NVS), Descartes Systems (DSGX), and Magic Software (MGIC) for steady returns. Read on….
After a miserable 2022, stocks have surged significantly since the start of this year as investors believe that inflation will continue to cool and the economy could avoid a recession. The Nasdaq Composite is up nearly 13% this year after posting its best January in over 20 years.
After seeing progress in its fierce battle with inflation, the Federal Reserve raised interest rates by 25 basis points at the Federal Open Market Committee’s first meeting of 2023, pushing its key policy rate to 4.5%-4.75%. This marks the smallest rate hike since March last year. Fed Chairman Jerome Powell acknowledged that “the disinflationary process has begun,” noting progress, especially in goods prices.
However, the January jobs data revealed that employers added a robust 517,000 jobs, exceeding the 187,000 market estimate, and the unemployment rate fell to 3.5%, a 53-year low. The labor market’s extraordinary strength underscores that the central bank has more work to do to tame inflation.
“If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in,” Powell said.
Furthermore, Federal Reserve Bank of Richmond President Thomas Barkin threw water on any hopes for a dovish turn in monetary policy by stating in an interview the importance of “staying the course” in order to return inflation to the Fed’s target of 2%.
Continued rate hikes are expected to push the economy into a recession. With the possibility of continued rate increases and a troubled economy, 2023 could be another volatile year for the stock market.
Therefore, investors could consider buying fundamentally strong and stable stocks Novartis AG (NVS), The Descartes Systems Group Inc. (DSGX), and Magic Software Enterprises Ltd. (MGIC) for steady risk-adjusted returns. These stocks are rated A for Stability in our POWR Ratings system.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments, Innovative Medicines; and Sandoz. It provides prescription medicine for patients and physicians. In addition, it offers cardiovascular, neuroscience, immunology, and solid tumor products.
On February 6, 2023, Sandoz, a division of NVS and the global leader in off-patent medicines, announced that the US Food and Drug Administration (FDA) accepted its Biologics License Application (BLA) for proposed biosimilar denosumab. Denosumab is indicated for treating various conditions, including osteoporosis in postmenopausal women.
The company continues to build a biosimilar portfolio to extend patient access to high-quality therapies and promote the sustainability of healthcare systems.
Also, on January 24, Sandoz struck a deal with Astellas to acquire worldwide product rights to the leading systemic antifungal drug Mycamine®. The addition of Mycamine® will support Sandoz global program to combat antimicrobial resistance (AMR) through the targeted use of appropriate therapies. This agreement might reinforce Sandoz hospital offering and enhance its position in generic antibiotics.
NVS has paid dividends for 25 consecutive years. NVS’ current dividend translates to a 4.02% yield annually, while its four-year average dividend yield is 3.58%. Over the last three years, its dividend payouts have grown at a 5.5% CAGR.
For the fourth quarter that ended December 31, 2022, NVS’ core operating income came in at $4.03 billion, up 5.5% year-over-year. Its core net income increased 3.7% year-over-year to $3.25 billion, while its core EPS was $1.52, up 8.6% year-over-year. In addition, the company’s free cash flow stood at $3.55 billion, an increase of 17.3% year-over-year.
NVS’ revenue is expected to increase 3.4% year-over-year to $52.26 billion in 2023, while its EPS is expected to grow 6.4% year-over-year to $6.51. Moreover, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
In addition, the consensus revenue and EPS estimate for the next fiscal year 2024 of $53.79 billion and $6.71 indicates an improvement of 2.9% and 3.1% year-over-year. Respectively.
The stock has gained 1% over the past five days to close the last trading session at $86.31. It has a 24-month beta of 0.29.
NVS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NVS has an A grade for Stability and a B for Sentiment, Value, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #2 out of 172 stocks.
Click here to access the additional POWR Ratings for NVS (Growth and Momentum).
The Descartes Systems Group Inc. (DSGX)
Headquartered in Waterloo, Canada, DSGX provides cloud-based logistics and supply chain management and business process solutions that enhance the productivity, performance, and security of logistics-intensive businesses worldwide. Its Logistics Technology platform offers a range of modular, cloud-based, and interoperable web and wireless logistics management applications.
On January 6, 2023, DSGX acquired Supply Vision, a provider of shipment management solutions for North American Logistics Services Providers (LSPs). DSGX’s CEO, Edward J Ryan, said, “The Supply Vision acquisition complements our recent investments in QuestaWeb, Kontainers, and Portrix, as we look to broaden our footprint for LSPs.”
“We’re looking forward to working with the Supply Vision customers, partners, and team of domain experts to continue to help LSPs digitize their operations and manage the lifecycle of shipments in a secure, efficient and sustainable manner,” he added.
For the fiscal 2023 third quarter ended October 31, 2022, DSGX’s revenues increased 11.5% year-over-year to $121.47 million. The company’s income from operations grew 25.2% from the year-ago value to $34.80 million. Also, its adjusted EBITDA increased 13.1% year-over-year to $54.50 million.
Additionally, the company’s net income increased 3.8% year-over-year to $26.47 million, while its EPS came in at $0.31, an increase of 3.3% from the prior-year quarter.
Analysts expect DSGX’s revenue to increase 9.9% year-over-year to $532.45 million in the fiscal year ending January 2024. The company’s EPS for the next year is expected to grow 18.1% year-over-year to $1.40. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Shares of DSGX have gained 5.5% over the past month and 4.9% over the past six months to close the last trading session at $74.83. The stock has a 24-month beta of 0.76.
DSGX’s fundamental strength and positive outlook are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Stability and a B for Quality and Sentiment. Within the Software – SAAS industry, it is ranked first out of 26 stocks.
To see the additional ratings of DSGX for Growth, Value, and Momentum, click here.
Magic Software Enterprises Ltd. (MGIC)
MGIC offers proprietary application development, business process integration, vertical software solutions, and IT outsourcing software services internationally. The company operates through Software Services and IT Professional Services segments. It is headquartered in Or Yehuda, Israel.
In the third quarter of fiscal 2022 ended September 30, MGIC’s revenues increased 19.1% year-over-year to $144 million, while its non-GAAP gross profit grew 18.5% from the year-ago value to $40.50 million. The company’s non-GAAP operating income rose 14.4% year-over-year to $18.50 million.
Furthermore, the company’s non-GAAP net income increased 14.9% from the prior-year period to $13.50 million, and its non-GAAP EPS came in at $0.28, up 16.7% year-over-year.
The company pays a $0.58 per share dividend annually, which translates to a 3.41% yield on the current share price. Its four-year average dividend yield is 2.57%. Its dividend payouts have grown at a CAGR of 18.3% over the past three years and 18.7% over the past five years.
Analysts expect MGIC’s revenue and EPS for the fiscal year (ended December 2022) to increase 17.1% and 9% year-over-year to $562.60 million and $1.02, respectively. The company’s revenue and EPS for the current fiscal year 2023 are expected to increase 8.8% and 12.2% year-over-year to $612.10 million and $1.15, respectively.
The stock has gained 3.3% over the past month to close the last trading session at $16.80. It has a 24-month beta of 0.93.
NVS’ POWR Ratings reflect its bright growth prospects. The stock’s overall B rating translates to a Buy in our proprietary rating system.
It has an A grade for Stability and a B for Sentiment and Growth. The stock is ranked #7 among 136 stocks in the Software-Application industry.
We have also given MGIC grades for Value, Quality, and Momentum. Get all MGIC ratings here.
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NVS shares were unchanged in premarket trading Friday. Year-to-date, NVS has declined -4.86%, versus a 6.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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