While the market is volatile, fourth-quarter corporate earnings are expected to support the major stock indices. According to FactSet, more companies are surpassing EPS estimates than the long-term average, and the earnings of S&P 500 members grew by more than 20% for the fourth straight quarter.
However, private payrolls fell by 301,000 in January, with an increase in weekly jobless claims. Also, a Bank of America economist predicts the Federal Reserve will hike rates seven times this year. This possibility could keep the market volatile in the near term, and investors should proceed with caution. Therefore, it could be wise to scoop up the shares of fundamentally strong mega-cap stocks because they are relatively less sensitive to market volatility than mid-cap or small-cap stocks.
Quality mega-cap stocks Costco Wholesale Corporation (COST) and Accenture plc (ACN) have declined by more than 8% in price year-to-date but possess strong upside potential. So, we think it could be wise to bet on these stocks now.
Costco Wholesale Corporation (COST)
With a market capitalization of $231.48 billion, COST in Issaquah, Wash., is a global retailer with warehouse club operations in eight countries. The company offers sundries, dry groceries, liquor, tobacco and deli products, electronics appliances, sporting goods, care products, furniture, housewares, and a wide range of merchandise products. As of August 29, 2021, the company operated 815 membership warehouses, with an average warehouse space of 146,000 square feet.
COST’s net sales for its fiscal first quarter, ended Nov. 21, 2021, increased 16.7% year-over-year to $49.42 billion. The company’s total revenue grew 16.6% from its year-ago value to $50.36 billion. Its operating income rose 18.4% from its year-ago value to $1.69 billion. Also, the company’s EPS increased 13.7% year-over-year to $2.98.
Analysts expect COST’s revenue to increase 11.3% year-over-year to $218 billion in its fiscal year 2022. Also, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. In addition, its EPS is expected to increase by 16% in the current year. The stock has declined by 8.1% in price year-to-date. However, it has gained 40.3% over the past nine months.
COST’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has a B grade for Sentiment. We have also graded COST for Growth, Value, Stability, Momentum, and Quality. Click here to access all the COST ratings. COST is ranked #17 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
Accenture plc (ACN)
Based in Dublin, Ireland, the professional service company has a market capitalization of $227.19 billion. The company offers application services, management services, strategy consulting services, value realization services, and other digital and operating solutions. Communications, Media, and Technology; Financial Services; Health and Public Service; and Products, and Resources are its segments.
Last month, ACN won a $73 million contract from the Internal Revenue Service (IRS) to support the agency. The company delivered an evolved fraud detection process with fully integrated advanced analytics to help the IRS expand anomaly detection for individual and business tax returns.
For the fiscal first quarter, ended Nov. 30, 2021, ACN’s revenues increased 27.2% year-over-year to $14.97 billion. The company’s operating income grew 28.6% from its year-ago value to $2.43 billion. Its net income rose 19.6% from the prior-year quarter to $1.82 billion. Also, the company’s EPS increased 19.8% year-over-year to $2.78.
ACN’s revenue is expected to increase 19% year-over-year to $53.35 billion in its fiscal year 2022. In addition, the company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Furthermore, its EPS is expected to increase by 20.4% in the current year. The stock has declined 13.3% in price year-to-date. However, it has surged 44.5% over the past year.
ACN’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has a B grade for Stability and Quality.
In addition to the POWR Rating grades I have just highlighted, one can see ACN’s ratings for Sentiment, Value, Momentum, and Growth here. ACN is ranked #5 of 11 stocks in the A-rated Outsourcing – Tech Services industry.
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COST shares were trading at $523.95 per share on Thursday afternoon, up $1.93 (+0.37%). Year-to-date, COST has declined -7.71%, versus a -5.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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