The strong jobs growth, high inflation, and tighter lending standards hint at a recession later this year. The recession fears are expected to keep the stock market volatile in the upcoming months.

Despite the macroeconomic uncertainty, investors must not be deterred from buying fundamentally strong, high-quality stocks, Microsoft Corporation (MSFT), Murphy USA Inc. (MUSA), and MSC Industrial Direct Co., Inc. (MSM).

Before diving deeper into the fundamentals of these stocks, let’s discuss why the stock market is likely to remain under pressure.

Ahead of the May jobs report, economists surveyed by Dow Jones expect job growth of 190,000, a slowdown from the 253,000 jobs added in April, below the 2023 monthly average. However, the trend shows that the labor market has been resilient, beating consensus estimates 13 of 16 times since January 2022.

Despite easing for the tenth consecutive month in April, inflation remained above the Fed’s 2% target. The personal consumption expenditures index (PCE) rose 0.4% sequentially and 4.7% from a year ago, higher than the 4.2% rise in March, reinforcing the chances that interest rates could remain higher for longer.

Markets fear that another rate hike could push the slowing economy toward a recession. Moreover, the high borrowing rates and possible credit crunch resulting from the tighter lending standards will likely increase the chances of an economic downturn.

Amid this uncertainty, investing in the featured high-quality stocks could be prudent. Let’s take a closer look at their fundamentals.

Microsoft Corporation (MSFT)

MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

On April 17, 2023, MSFT and Epic announced they are expanding their long-standing strategic collaboration to develop and integrate generative AI into healthcare.

MSFT’s corporate VP, of AI Platform, Eric Boyd, stated, “Our expanded partnership builds on a long history of collaboration between Microsoft, Nuance, and Epic, including our work to help healthcare organizations migrate their Epic environments to Azure. Together we can help providers deliver significant clinical and business outcomes leveraging the power of the Microsoft Cloud and Epic.”

In terms of the trailing-12-month EBIT margin, MSFT’s 41.42% is 851.5% higher than the 4.35% industry average. Its 38.60% trailing-12-month Return on Common Equity is significantly higher than the 0.63% industry average. Likewise, its 12.54% trailing-12-month CAPEX/Sales is 456.7% higher than the industry average of 2.25%.

For the quarter ended March 31, 2023, MSFT’s adjusted gross margin increased 8.8% year-over-year to $36.73 billion. The company’s adjusted operating income increased 9.8% from the prior-year period to $22.35 billion. Its adjusted net income increased 9.4% year-over-year to $18.30 billion. Also, its adjusted EPS came in at $2.45, representing an increase of 10.4% year-over-year.

MSFT’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 14.7% and 6.9% year-over-year to $2.56 and $55.42 billion, respectively. It has an excellent earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 38.7% year-to-date to close the last trading session at $332.58.

MSFT’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.

Within the Software – Business industry, it is ranked #8 out of 50 stocks. The stock has a B grade for Stability, Sentiment, and Quality. Click here to see the additional ratings of MSFT for Growth, Value, and Momentum.

Murphy USA Inc. (MUSA)

MUSA engages in the marketing of retail motor fuel products and convenience merchandise. The company operates retail stores under the Murphy USA, Murphy Express, and QuickChek brands.

In terms of the trailing-12-month Return on Common Equity, MUSA’s 83.11% is 716.8% higher than the 10.18% industry average. Its 15.22% trailing-12-month Return on Total Assets is 317.8% higher than the 3.64% industry average. Likewise, its 5.09x trailing-12-month asset turnover ratio is 406.1% higher than the industry average of 1.01x

MUSA’s net income for the first quarter ended March 31, 2023, came in at $106.30 million. Its merchandise sales rose 8.3% year-over-year to $966.20 million. The company’s adjusted EBITDA came in at $220.20 million. Additionally, its EPS came in at $4.80.

MUSA’s EPS for fiscal 2024 is expected to increase 2.4% year-over-year to $21.89. Its revenue for the quarter ending December 31, 2023, is expected to increase 2.8% year-over-year to $5.52 billion. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 14.1% to close the last trading session at $280.87.

It is no surprise that MUSA has an overall rating of B, which translates to a Buy in our proprietary rating system.

Within the Specialty Retailers industry, it is ranked #10 out of 44 stocks. The stock has a B grade for Value and Quality. Click here to see the additional ratings of MUSA for Growth, Momentum, Stability, and Sentiment.

MSC Industrial Direct Co., Inc. (MSM)

MSM distributes metalworking and maintenance, repair, and operations (MRO) products and services worldwide. Its MRO products include cutting tools, measuring instruments, tooling components, metalworking products, fasteners, flat stock products, raw materials, abrasives, machinery hand and power tools, among other supplies.

In terms of the trailing-12-month gross profit margin, MSM’s 41.89% is 39.5% higher than the 30.02% industry average. Its 1.53x trailing-12-month asset turnover ratio is 91.3% higher than the 0.80x industry average. Likewise, its 14.43% trailing-12-month Return on Total Assets is 184.8% higher than the industry average of 5.07%.

MSM’s net sales for the second quarter ended March 4, 2023, increased 11.5% year-over-year to $961.60 million. Its adjusted income from operations increased 16.8% year-over-year to $117.20 million.

The company’s adjusted net income attributable to MSM increased 12.5% year-over-year to $81.30 million. Moreover, its adjusted EPS came in at $1.45, representing a 12.4% increase over the prior-year period.

MSM’s EPS for fiscal 2023 is expected to increase 1.9% year-over-year to $6.27. Its revenue for the quarter ended May 31, 2023, is expected to increase 5.9% year-over-year to $1.01 billion. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

Over the past nine months, the stock has gained 14.9% to close the last trading session at $90.97.

MSM’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

It is ranked #20 out of 91 stocks in the B-rated Industrial – Equipment industry. It has an A grade for Quality and a B for Momentum and Sentiment.  We have also given MSM grades for Growth, Value, and Stability. Get all MSM ratings here.

What To Do Next?

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MSFT shares were trading at $334.43 per share on Friday morning, up $1.85 (+0.56%). Year-to-date, MSFT has gained 40.11%, versus a 12.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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