The Fed’s recent 25 bps rate hike in response to cooling inflation and Powell’s dovish comments improved investor sentiment. Amid growing optimism over the slowing interest rate hikes, we think fundamentally strong stocks Archer-Daniels-Midland (ADM), Biogen (BIIB), and MasterCraft (MCFT) are ideal additions to one’s portfolio. Read on….
Last week, the Federal Reserve raised interest rates by 25 basis points (bps) at its first meeting of 2023, taking it to a target range of 4.5% to 4.75%. This move marks a slowdown from the 50-bps hike in December and a string of four 75-bps hikes from June through November last year.
Although the central bank acknowledged reduced inflation, it signaled a rate hike again in March. Fed Chair Jerome Powell said, “It would be very premature to declare victory or think that we really got this.” But he also added, “We can now say, I think for the first time, that the disinflationary process has started.” This indicates that the Fed is nearing the end of its hiking cycle.
Stocks have had a great start to 2023, with optimism fueled by the recent slowdown in the Fed’s rate increases and increasing odds of a pause in hikes in the year’s second half. Even disappointing earnings reports from big tech companies and much stronger-than-expected jobs report released on Friday could not dent the market rally. Over the past month, the S&P 500 has gained more than 6%, while the Nasdaq Composite rallied almost 13%.
Overall, the steady cooling of inflation, firm jobs market data, China’s lifting of Covid restrictions, and signs of easing energy market stress have contributed considerably to an improvement in investor sentiment in the past few weeks. Based on the recent AAII Sentiment Survey, bullish sentiment rose 1.5 percentage points to 29.9%.
Archer-Daniels-Midland Company (ADM)
ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients worldwide. The company operates through three segments: Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition.
On January 26, 2023, ADM’s Board of Directors announced raising the quarterly dividend by 12.5% to $0.45 per share, representing the company’s 50th consecutive year of dividend increases. The dividend is payable on March 2, 2023. ADM’s dividend payouts have increased at a 4.6% CAGR over the past five years. Its current dividend yield is 2.19%, while its four-year average yield is 2.72%.
Also, on the same day, Chairman and CEO Juan Luciano announced that the company is expanding investments in the decarbonization of some of its large production facilities to support the expansion of its Carbohydrate Solutions segment and leveraging new food technology platforms to answer shifting customer preferences and longer-term food security demands.
For the fourth quarter of fiscal 2022 ended December 31, ADM’s total revenues increased 13.6% year-over-year to $26.23 billion, and its gross profit rose 6.8% from the year-ago value to $1.76 billion. In addition, the company’s adjusted net earnings came in at $1.07 billion, up 25.8% year-over-year, while its adjusted EPS came in at $1.93, up 28.7% year-over-year.
Analysts expect ADM’s revenue to increase 2.8% year-over-year to $24.32 billion for the current quarter (ending March 2023). Also, the consensus revenue estimate of $25.07 billion for the third quarter (ending September 2023) indicates a 1.6% year-over-year improvement. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 8.7% over the past year to close the last trading session at $82.28.
ADM’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Sentiment. It is ranked #5 out of 28 stocks in the Agriculture industry.
Click here to access the additional ADM ratings for Value, Momentum, Stability, and Quality.
Biogen Inc. (BIIB)
BIIB discovers, develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases.
On January 29, 2023, BIIB and Eisai Co., Ltd. announced that an application for manufacturing and marketing approval for LEQEMBI (lecanemab), received Priority Review status in Japan. Also, in January this year, in the U.S., lecanemab was granted accelerated approval for the treatment of Alzheimer’s disease (AD) by the U.S. Food and Drug Administration (FDA).
On January 4, BIIB and Alcyone Therapeutics (Alcyone) entered a license and collaboration agreement to develop Alcyone’s ThecaFlex DRx™ System, an implantable medical device used for subcutaneous delivery of antisense oligonucleotide (ASO) therapies into the intrathecal space.
Through this agreement, BIIB aims to leverage the ThecaFlex DRx™ System to improve the patient treatment experience and accessibility to neurological ASO therapies.
During the fiscal third quarter ended September 30, 2022, BIIB’s income before income tax expense and equity in loss of investee, net of tax, increased 370.7% year-over-year to $1.37 billion. The company’s net income grew 256.8% from the year-ago value to $1.13 billion, while EPS attributable to BIIB came in at $7.84, up 253.2% year-over-year.
As of September 30, 2022, BIIB’s cash and cash equivalents were $3.68 billion, compared to $2.26 billion as of December 31, 2021.
Analysts expect BIIB’s EPS for the fourth quarter (ended December 2022) to increase 3.5% year-over-year to $3.51. Also, the company’s EPS for the ongoing quarter (ending March 2023) is expected to grow 12.6% year-over-year to $4.08. The company has surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of BIIB have gained 32.8% over the past six months to close the last trading session at $283.63.
BIIB’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system.
MasterCraft Boat Holdings, Inc. (MCFT)
MCFT designs, manufactures, and markets recreational powerboats. The company operates through four segments: MasterCraft; Crest; NauticStar; and Aviara.
On November 2, MCFT announced an expansion of its popular entry-level NXT lineup with the all-new 2023 NXT21 and NXT23. The new models deliver best-in-class wave performance, added storage, spacious hybrid bow design, and standard telematics.
According to George Steinbarger, Chief Revenue Officer at MCFT, since the introduction of the NXT line in 2015, the company’s entry-level offering has been well-received by customers.
For the fiscal 2023 first quarter ended October 2, 2022, MCFT’s net sales increased 29.7% year-over-year to $169.5 million. The company’s adjusted EBITDA grew 72.8% from the year-ago value to $35.94 million. Its net income from continuing operations increased 101.4% year-over-year to $24.64 million. Also, its adjusted net income per share came in at $1.43, up 90.7% year-over-year.
MCFT’s EPS is estimated to increase 11.2% year-over-year to $1.01 for the fiscal 2023 second quarter (ended December 2022). Moreover, the company has surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 26.3% over the past six months and 17.1% over the past year to close the last trading session at $30.89.
It’s no surprise that MCFT has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The stock has a grade B for Growth, Value, Sentiment, and Quality. MCFT is ranked #2 of 37 stocks in the Athletics & Recreation industry.
Beyond what is stated above, we have also rated MCFT for Momentum and Stability. Get all MCFT ratings here.
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ADM shares were unchanged in premarket trading Monday. Year-to-date, ADM has declined -11.38%, versus a 7.82% 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.