The recent financial crisis from the failures of regional banks, the Fed’s persistent hawkish stance, and renewed recession fears have induced heightened market volatility over the past few weeks. Despite uncertain macroeconomic conditions, investors may consider buying fundamentally strong stocks Salesforce, Inc. (CRM), AGCO Corporation (AGCO), and Cars.com Inc. (CARS) with solid growth attributes for significant gains this year.
After a challenging 2022, growth stocks witnessed a strong rally at the start of this year, driven by constant moderation in inflation and hopes of the Fed’s downshift on tightening. However, they began to slide once again due to several macroeconomic headwinds.
In February, inflation cooled slightly but is still much higher than the Fed’s target. The Consumer Price Index (CPI) increased 0.4% sequentially, putting the annual inflation rate at 6%, which is well above the Fed’s 2% target. Along with the high inflation, the labor market continues to remain robust. Nonfarm payrolls rose by 311,000 in February, higher than the 225,000 analysts’ estimates.
The slew of robust economic data made the Fed approve another rate hike. Yesterday, the central bank raised interest rates by 25 basis points, despite the turmoil in the financial sector. This marks the ninth hike since March 2022, taking the benchmark federal funds rate to a target range between 4.75% and 5%.
Fed Chairman Jerome Powell said “rate cuts are not in our base case” for the remainder of this year despite prominent economists urging the Fed to pause rate hikes due to concerns of overcorrecting the economy into recession amid recent bank collapses.
The escalation in near-term uncertainty has compelled Goldman Sachs Group to adjust its recession forecasts. Jan Hatzius, Goldman Sachs’ chief economist, now predicts a 35% possibility of a recession in the next 12 months, an increase from his previous estimate of 25%. Furthermore, according to the BofA fund manager survey, about 42% of fund managers surveyed see a recession within the next 12 months.
Heightened macroeconomic uncertainty, as reflected by growing recession odds, is expected to keep the stock market under immense pressure in the near term. Despite current macroeconomic conditions, few growth stocks have what it takes to prosper and deliver big returns this year.
Investors’ interest in growth stocks is evident from the Vanguard Growth ETF’s (VUG) 9.1% returns over the past six months. Fundamentally sound growth stocks CRM, AGCO, and CARS are well-positioned to deliver significant returns despite heightened market and economic uncertainty.
Let’s discuss these stocks in detail.
Salesforce, Inc. (CRM)
CRM is a cloud-based software company. It provides Customer Relationship Management (CRM) technology that brings companies and customers together worldwide. The company’s CRM software and applications focus on sales, marketing automation, customer service, e-commerce, and analytics.
On March 7, 2023, CRM launched Einstein GPT, the world’s first generative AI CRM technology, which delivers AI-created content at a hyper-scale level across every sale, service, marketing, commerce, and IT interaction. Einstein GPT will infuse CRM’s proprietary AI models with generative AI technology from an ecosystem of partners and real-time data from the Salesforce Data Cloud.
The new launch is expected to boost the company’s growth and profitability.
On January 12, CRM and Walmart Commerce Technologies announced their partnership to provide retailers with technologies and services that power frictionless local pickup and delivery for shoppers everywhere.
CRM’s Executive VP of Alliances & Channels, Tyler Prince, said, “Salesforce is thrilled to partner with Walmart as it transforms its business and further expands into the digital technology market.”
CRM’s revenue has grown at a CAGR of 22.4% over the past three years. Over the same period, the company’s EBIT has increased at a CAGR, while its net income and EPS have grown at CAGRs of 18.2% and 11.8%, respectively.
CRM’s total revenues increased 14.4% year-over-year to $8.38 billion for the fourth quarter that ended January 31, 2023. Its gross profit rose 18.3% year-over-year to $6.28 billion. In addition, the company’s non-GAAP net income grew 96.4% from the year-ago value to $1.66 billion, while its non-GAAP net income per share was $1.68, up 100% year-over-year.
Analysts expect CRM’s revenue and EPS for the fiscal year (ending January 2024) to come in at $34.62 billion and $7.13, indicating an improvement of 10.4% and 36% year-over-year, respectively. The company’s revenue and EPS for fiscal 2025 are expected to increase 11.2% and 22.4 from the previous year to $38.50 billion and $8.72, respectively.
Moreover, CRM has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 14.4% over the past month and 27.5% over the past six months to close the last trading session at $187.44. It is currently trading above its 50-day and 200-day moving averages of $169.20 and $161.48, respectively, indicating an uptrend.
CRM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CRM has an A grade for Growth and Sentiment and a B for Quality. It is ranked #22 out of 134 stocks in the Software – Application industry.
Click here for additional ratings for CRM’s Stability, Value, and Momentum.
AGCO Corporation (AGCO)
AGCO manufactures and distributes agricultural equipment and related replacement parts globally. The company markets and sells its products under the Challenger, GSI, Fendt, Massey Ferguson, and Valtra brands through a network of independent dealers and distributors.
Eric Hansotia, AGCO’s Chief Executive Officer, said, “For 2023, we expect continued sales growth and margin expansion as industry demand remains strong and our farmer-first strategy continues to gain traction. We assume global market conditions will remain healthy, as favorable farm economics allow farmers to continue to invest in new more productive equipment and technology upgrades.”
“We remain focused on growing our high-margin precision ag business, globalizing the full-line of our Fendt branded products and expanding our parts and service business,” he added.
CARS’ revenue has grown at an 11.9% CAGR over the past three years, while its EBITDA and net income have increased at CAGRs of 25.4% and 92.3%, respectively. Also, its EPS has grown at a 93.8% CAGR over the same period.
For the fourth quarter that ended December 31, 2022, AGCO’s revenue increased 23.6% year-over-year to $3.90 billion, and its gross profit rose 37.8% year-over-year to $940.60 billion. Its adjusted income from operations grew 71.9% from the prior-year quarter to $467.50 million. AGCO’s adjusted net income was $335.30 million, an increase of 44.5% year-over-year.
Furthermore, the company’s non-GAAP EPS came in at $4.47, up 45.1% year-over-year.
Analysts expect AGCO’s revenue and EPS for the current fiscal year (ending December 2023) to increase 11.1% and 9.3% year-over-year to $14.05 billion and $13.58, respectively. In addition, the company has an impressive earnings surprise history as it topped the consensus EPS estimates in each of the trailing four quarters.
Shares of AGCO have gained 29.4% over the past six months to close the last trading session at $125.62. The stock is currently trading above its 200-day moving average of $119.55, indicating an uptrend.
AGCO’s POWR Ratings reflect a strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Value and a B for Momentum. AGCO is ranked #2 of 25 stocks in the Agriculture industry.
Beyond what we stated above, we have also rated AGCO for Sentiment, Stability, and Quality. Get all AGCO ratings here.
Cars.com Inc. (CARS)
CARS operates as a digital marketplace and offers solutions for the automotive industry. The company allows dealers and automotive manufacturers to connect sellers with ready-to-buy shoppers and empowers shoppers with the resources and digital tools needed to make car-buying decisions. It serves local car dealers, OEMs, and other national advertisers and lenders.
CARS’ revenue has grown at a 2.5% CAGR over the past three years, while its EBITDA and EBIT have increased at CAGRs of 12.6% and 63.5%, respectively. Moreover, the company’s levered free cash flow has grown at a 16.8% CAGR over the same time frame.
For the fourth quarter that ended December 31, 2022, CARS’ total revenues increased 6.3% year-over-year to $168.20 million. Its operating income rose 387.7% from the year-ago value to $19.81 million. The company’s income before income taxes was $16.46 million, compared to a loss before income taxes of $5.45 million in the prior year’s quarter.
In addition, the company’s net income and EPS came in at $10.26 million and $0.15, compared to net loss and loss per share of $2.88 million and $0.04, respectively.
The consensus revenue estimate of $684.71 billion for fiscal 2023 reflects a growth of 4.7% year-over-year. Likewise, the consensus EPS estimate of $1.98 for the current year indicates a 32.7% year-over-year improvement. In addition, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 57.3% over the past six months and 20% over the past year to close the last trading session at $17.92. It is currently trading above its 50-day and 200-day moving averages of $17.17 and $13.58, respectively, indicating an uptrend.
CARS’ strong prospects are apparent in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CARS has an A grade for Growth. It is ranked #5 within the B-rated 21-stock Auto Dealers & Rentals industry.
In addition to the POWR Ratings I’ve just highlighted, you can also see CARS’ Quality, Stability, Value, Sentiment, and Momentum ratings here.
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CRM shares were trading at $188.37 per share on Friday morning, up $0.93 (+0.50%). Year-to-date, CRM has gained 42.07%, versus a 2.50% 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. More...
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