Although the major stock market indices have been hit hard since the beginning of the year, stocks surged for a second day on Monday. Furthermore, despite the rising uncertainties related to record-high inflation, supply chain issues, and a poor labor market report, many analysts expect the market to end higher in 2022. David Kostin. the chief U.S. stock market strategist at Goldman Sachs, expects the market to finish the year up 15% from where it closed last week.
While the WallStreetBets (WSB) community on Reddit generally targets fundamentally poor stocks with a high level of short interest, we believe some highly discussed WSB stocks have sufficient fundamental strength to yield excellent returns in the current scenario.
Frequently discussed WSB stocks Microsoft Corporation (MSFT), International Business Machines Corporation (IBM), Dow Inc. (DOW), and ON Semiconductor Corporation (ON) have recently suffered significant price dips. However, based on their solid growth attributes, we think they should see a substantial rebound in the coming months.
Microsoft Corporation (MSFT)
Redmond, Wash.-based MSFT, has a $2.33 trillion market capitalization. The company is ranked number 15 in the 2021 Fortune 500 ranking list. Last month, MSFT announced its plan to acquire Activision Blizzard Inc., a game development and interactive entertainment content publisher, in a $68.7 billion all-cash transaction. The acquisition should accelerate the growth of MSFT’s gaming business in mobile, PC, console, and cloud and provide building blocks for the metaverse.
MSFT’s revenue increased 20.1% year-over-year to $51.73 billion in its fiscal second quarter, ended Dec. 31, 2021. The company’s gross margin grew 20.4% from its year-ago value to $34.77 billion. Its operating income rose 24.3% from the prior-year quarter to $22.25 billion. Also, the company’s net income increased 21.4% year-over-year to $18.77 billion.
Analysts expect MSFT’s revenue for its fiscal year 2022 to be $198.87 billion, representing 18.3% growth year-over-year. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. MSFT’s EPS is estimated to grow 16% in the current year. The stock has gained 34.1% over the past year and is currently trading 11.1% below its 52-week high of $349.67, which it hit on Nov. 22, 2021.
MSFT’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, Stability, and Quality. We have also graded MSFT for Momentum, Value, and Growth. Click here to access all of MSFT’s ratings. MSFT is ranked #19 of 171 stocks in the Software – Application industry.
International Business Machines Corporation (IBM)
IBM is an Armonk, N.Y.-based multinational information technology corporation that offers cloud computing, artificial intelligence, data analytics, IoT, IT infrastructure, digital workspace, and cybersecurity. The company also provides hosting and consulting services in areas ranging from mainframe computers to nanotechnology and operates in more than 171 countries.
Last month, IBM acquired Envizi, a data and analytics software provider for environmental performance management. The acquisition should build IBM’s growing investments in AI-powered software solutions and help organizations create more resilient and sustainable operations and supply chains.
During the fourth quarter, ended Dec. 31, 2021, IBM’s total revenue increased 6.5% year-over-year to $16.7 billion. The company’s revenue under the software segment grew 8.2% from its year-ago value to $7.27 billion. Its gross profit rose 2.8% from the prior-year quarter to $9.5 billion. Also, the company’s net income increased 72% year-over-year to $2.33 billion.
IBM’s revenue is expected to increase 5.8% year-over-year to $60.65 billion in its fiscal 2022. The company has an impressive earnings surprise history; it has surpassed the consensus EPS estimates in each of the trailing four quarters. In addition, its EPS is expected to increase 24% in the current year. IBM has gained 11.8% in price over the past three months. Also, it is currently trading 8.6% below its 52-week high of $146.12, which it hit on June 10, 2021.
IBM’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 Value and Quality.
In addition to the POWR Ratings grades I’ve just highlighted, one can see IBM’s ratings for Growth, Stability, Momentum, and Sentiment here. The stock is ranked #14 of 80 in the Technology – Services industry.
Dow Inc. (DOW)
Incorporated in 2018, Midland, Mich.-based DOW is a holding company for The Dow Chemical Company and its subsidiaries that provides various materials science solutions. DOW’s portfolio of plastics, industrial intermediates, coatings, and silicones businesses delivers a range of science-based products and solutions for its customers in various market segments.
Last month, DOW and New Hope Energy, which creates solutions to the plastic waste crisis, formed a strategic partnership to provide pyrolysis oil feedstock derived from recycled plastics collected in North America. Through this partnership, the companies should scale up the technology to provide larger quantities of circular oils to the markets.
DOW’s net sales increased 34.2% year-over-year to $14.36 billion for the fourth quarter, ended Dec. 31, 2021. The company’s net income grew 40.4% from the year-ago value to $1.76 billion. And its EPS rose 40.6% from the prior-year quarter to $2.32.
DOW has surpassed the consensus EPS in each of the trailing four quarters. Its EPS is expected to increase at a 56.8% per annum rate over the next five years. YELP’s stock price has surged 15.1% over the past year. Also, it is currently trading 16.3% below its 52-week high of $71.38, which it hit on May 18, 2021.
It is no surprise that DOW has an overall B rating, which equates to a Buy in our POWR Ratings system. Also, the stock has an A grade for Value.
ON Semiconductor Corporation (ON)
ON offers a portfolio of sensors, power management, connectivity, custom and system on chip (SoC), analog, logic, timing, and discrete devices. The Phoenix, Ariz.-based company operates in three segments–Power Solutions Group (PSG); Advanced Solutions Group (ASG); and Intelligent Sensing Group (ISG). ON serves original equipment manufacturers, distributors, and electronic manufacturing service providers.
Last November, ON acquired GT Advanced Technologies, a producer of silicon carbide (SiC). The acquisition should enhance ON’s ability to secure and grow the supply of SiC. After the acquisition, ON should be able to provide end-to-end power solutions from SiC crystal growth to fully integrated intelligent power modules.
ON’s revenue for the third quarter, ended Oct. 1, 2021, increased 32.2% year-over-year to $1.74 million. The company’s gross profit grew 12.6% from its year-ago value to $720.8 million. Its operating income rose 235.5% from the prior-year quarter to $399.2 million. And the company’s net income increased 92.6% year-over-year to $310.4 million.
ON’s revenue for the fiscal year 2022 is expected to be $7.13 billion, representing6.6% year-over-year growth. The company has surpassed the consensus EPS in each of the trailing four quarters. Its EPS is expected to increase at a 229.4% rate in fiscal 2021 and 16.4% in fiscal 2022. The stock has surged 71.1% in price over the past year. Also, it is currently trading 17.2% below its 52-week high of $71.26, which it hit on January 4, 2022.
ON’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 an A grade for Growth and a B grade for Value.
In addition to the POWR Rating grades I have just highlighted, one can see ON’s ratings for Quality, Stability, Sentiment, and Momentum here. ON is ranked #38 of 100 stocks in the A-rated Semiconductor & Wireless Chip industry.
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MSFT shares were trading at $306.56 per share on Tuesday morning, down $4.42 (-1.42%). Year-to-date, MSFT has declined -8.85%, versus a -5.44% 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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