Inflation improved for the sixth consecutive month, marking another minor fall in the annual inflation rate. It rose 6.5% year-over-year in December after rising 7.1% in November. Also, monthly inflation declined 0.1% after increasing by the same amount in November. This plunge marks the first monthly decline since May 2020.
Declining inflation could allow the Federal Reserve to reduce the pace of interest rate hikes even further next month. Philadelphia Fed’s Patrick Harker believes that going forward, a 25-basis-point rate hike would be acceptable.
“There are strong reasons to expect positive growth in coming quarters,” says Jan Hatzius, chairman of Goldman Sachs Research and the firm’s top economist. Goldman Sachs experts anticipate a 35% probability of a recession this year, below the median of 65% forecasted in a Wall Street Journal survey.
This suggests that the economy might have a soft landing this year and avoid going into recession. Furthermore, the major stock market indexes are still in positive territory for the year. KKM Financial’s founder and CEO, Jeff Kilburg, said, “We are finding a way to continue to move and have higher lows.”
Given the improving economic condition, it could be wise to invest in fundamentally strong and quality stocks Cisco Systems, Inc. (CSCO) and Carrier Global Corporation (CARR) for big profits this year.
Cisco Systems, Inc. (CSCO)
CSCO designs and sells a range of Internet-related technology. The company operates through three geographical segments, the Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
On January 19, 2023, CSCO teamed with [email protected] Limited, the largest national transport (transmission) service provider in Bangladesh, to accelerate the conversion of their network to 400G.
By integrating [email protected]’s IP and optical networks onto CSCO’s single platform, the upgrade to 400G could accommodate the exponential demand for data in Bangladesh. This should aid CSCO in growing its business.
In addition, on December 15, 2022, CSCO and T-Mobile US Inc. (TMUS) announced their collaboration to develop the world’s largest highly scalable and distributed nationwide cloud native converged core gateway. This development could enable the most cutting-edge 5G applications for clients and businesses and assist CSCO’s expansion.
For the fiscal first quarter that ended October 29, 2022, CSCO’s total revenue grew 5.7% year-over-year to $13.63 billion. Its gross margin rose 3.6% from the prior year’s quarter to $8.35 billion. The company’s operating income increased 3% from the year-ago value to $3.54 billion.
Furthermore, CSCO’s non-GAAP net income stood at $3.55 billion, a 2.1% increase year-over-year, while its non-GAAP EPS stood at $0.86, up 4.9% from the prior year’s period.
CSCO has raised its dividends for 11 consecutive years. It pays a $1.52 per share dividend annually, translating to a 3.25% yield on the current price level. The company’s four-year average dividend yield is 2.98%, and its dividend payouts have grown at a 5.6% CAGR over the past five years.
Analysts expect CSCO’s revenue to increase 5.7% year-over-year to $54.51 billion for the fiscal year ending July 2023. The company’s EPS for the ongoing year is expected to rise 5.6% from the previous year to $3.55. Moreover, CSCO surpassed its consensus EPS in all four trailing quarters, which is impressive.
Shares of CSCO have gained 6% over the past six months to close the last trading session at $46.78.
CSCO’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a Quality grade of A and a Stability grade of B. Within the B-rated 48-stock Technology – Communication/Networking industry, it ranks #3.
To see additional POWR Ratings for Value, Growth, Momentum, and Sentiment for CSCO, click here.
Carrier Global Corporation (CARR)
CARR provides heating, ventilation, air conditioning (HVAC), refrigeration, fire, and security solutions. Its segments include HVAC; Refrigeration; and Fire & Security. The company provides residential and building systems, transport and commercial refrigeration, as well as heating and cooling goods and services.
On December 19, 2022, CARR and Amazon Web Services, Inc. (AWS) announced their collaboration to offer additional Software-as-a-Service (SaaS) products on AWS Marketplace. With the use of AWS IoT Core, analytics, and machine learning services, CARR’s Lynx digital platform should be able to provide its clients with better visibility, connectivity, and intelligence across their cold chain operations.
Moreover, on December 7, CARR declared a quarterly dividend of $0.185 per outstanding share of its common stock, registering a 23% increase over the previous quarterly dividend. The dividend is payable to shareholders on February 10, 2023.
The company pays a $0.74 per share dividend annually, which translates to a 1.74% yield on the current price level. Its four-year average dividend yield is 0.85%.
For the fiscal third quarter (ended September 30, 2022), CARR’s total net sales increased 2.1% year-over-year to $5.46 billion, and its operating profit grew 84.3% from the year-ago value to $1.53 billion. The company’s net income attributable to common shareowners rose 179.8% year-over-year to $1.31 billion, while its EPS came in at $1.53, up 188.7% year-over-year.
The consensus revenue estimate of $21.67 billion for the current fiscal year (ending December 2023) reflects a growth of 6.3% from the previous year. Likewise, the consensus EPS estimate of $2.54 for the ongoing year indicates an 8.7% year-over-year improvement. Also, CARR surpassed its consensus EPS in all four trailing quarters.
The stock has gained 13.9% over the past month to close the last trading session at $42.57.
CARR’s strong prospects are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
CARR has a B grade for Value, Quality, and Sentiment. Within the B-rated Industrial – Building Materials industry, it ranks #5 of 46 stocks.
Beyond what we stated above, we also have CARR’s ratings for Stability, Growth, and Momentum. Get all CARR ratings here.
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
CSCO shares were trading at $47.35 per share on Monday morning, up $0.57 (+1.22%). Year-to-date, CSCO has gained 0.19%, versus a 4.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...
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