Sky-high inflation and interest rate hikes by the Federal Reserve to fight it have resulted in increased borrowing costs and heightened volatility in the market. Uncertainties hang this year as well.

The year 2022 has brought eye-watering losses for investors, being the worst since 2008 as all three major indices plunged. Over the past year, the S&P 500 has declined 19.2%, while the Dow Jones Industrial Average and the Nasdaq Composite have plunged 8.8% and 33%, respectively.

The Fed is projected to raise interest rates to 5.1% in 2023. However, consumer sentiments improved following the better-than-expected inflation numbers in October and November. This raised hopes of the Feds lowering the size of rate hikes.

As per the analysts of J.P Morgan, S&P 500 is predicted to reach 4,200 by year-end 2023. Also, analysts expect a favorable year for investors. Michael Antonelli, managing director and market strategist at investment bank Baird said, “The stock markets all about ‘Are things getting better or are things getting worse?’ I think they will get slightly better next year.”

The stock market sell-offs last year had caused fundamentally quality stocks to tumble, providing the right opportunity to consider buying shares of Microsoft Corporation (MSFT) and Xperi Inc. (XPER), which are currently trading at massive discounts.

Value stocks have been outperforming growth stocks. Over the past three months, the S&P 500 Value ETF (SPYV) grew by 13.2%, while the S&P 500 Growth ETF (SPYG) grew by 1.1%.

Microsoft Corporation (MSFT)

Tech giant MSFT is a pioneer in the software field. The company operates in three segments: Productivity and Business Processes; More Personal Computing; and Intelligent Cloud.

On December 14, MSFT and ViaSat (VSAT) announced a new partnership to help deliver internet access to 10 million people around the globe, including 5 million across Africa.

Teresa Hutson, Microsoft’s vice president of Technology and Corporate Responsibility, said, “Working with VSAT, we will use satellite to reach remote areas, and rapidly scale and expand Airband’s reach, exploring a wider pipeline of projects and new countries where we haven’t yet worked.”

On November 3, it was reported that aerospace and defense company Raytheon Technologies Corporation (RTX) and MSFT had deepened their collaboration to co-develop capabilities. MSFT might stand to benefit from helping RTX execute its digital transformation.

On November 29, a quarterly dividend of $0.68 per share was declared by MSFT, which is payable to shareholders on March 09, 2023. Its annual dividend of $2.72 yields 1.13% on prevailing prices. Its four-year average dividend yield is 1.04%.

The company’s dividend payouts have increased at a 10.4% CAGR over the past three years and a 9.8% CAGR over the past five years. This reflects upon the company’s strong cash generation ability.

In terms of its forward non-GAAP P/E, MSFT is trading at 25.15x, 13.6% lower than its 5-year average of 29.11x. The stock’s forward EV/EBIT multiple of 20.06 is 14.51% lower than its 5-year average of 23.46x.

For the fiscal first quarter that ended September 30, MSFT’s total revenue increased 10.6% year-over-year to $50.12 billion. Its gross margin rose 9.5% from the prior-year quarter to $34.67 billion. Operating income grew 6.3% from the prior-year period to $21.52 billion. Its EPS came in at $2.35.

For the fiscal third quarter ending March 2023, the consensus EPS estimate of $2.35 indicates a 5.8% improvement year-over-year. Revenue is expected to rise 7% year-over-year to $52.79 billion for the same quarter. In addition, MSFT topped consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.

The stock has gained 3% over the past three months and 1.2% over the past five days to close its last trading session at $239.82.

MSFT’s POWR Ratings reflect a promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MSFT is also rated a B in Stability, Sentiment, and Quality. Within the Software – Business industry, it is ranked #9 of 53 stocks.

To see additional POWR Ratings for Momentum, Growth, and Value for MSFT, click here.

Xperi Inc. (XPER)

XPER is engaged in offering a suite of software and services. It provides customers with a smooth end-to-end entertainment experience, from selection to consumption. Its segments include Pay TV; Consumer Electronics; Connected Cars; and Media Platform.

On October 12, DTS, a fully owned subsidiary of XPER, IMAX Corporation (IMAX), and Rakuten TV, a subsidiary of Rakuten Group, Inc. (RKUNY), one of the top video-on-demand platforms, announced a substantial expansion of the IMAX Enhanced ecosystem with Rakuten TV’s pledge to carry 100 movies in the IMAX Enhanced format.

Through this partnership, XPER hopes to expand its engagement by enabling new content on its service, showing how it supports outstanding moviegoing experiences for viewers.

In terms of its forward EV/Sales, XPER is trading at 0.56x, 77.6% lower than the industry average of 2.47x. The stock’s forward price/sales multiple of 0.73 is 70.6% lower than the industry average of 2.47x.

For the fiscal 2022 third quarter ended September 30, 2022, XPER’s revenues increased 3.3% year-over-year to $121.64 million. As of September 30, 2022, the company’s cash and cash equivalents stood at $180.12 million, compared to $120.70 million as of December 31, 2021, while total current assets came in at $336.30 million compared to $277.14 million as of December 31, 2021.

XPER’s trailing-12-month gross profit margin of 74.91% is 51.3% higher than the industry average of 49.53%. Its trailing-12-month levered FCF margin of 8.52% is 14.4% higher than the 7.45% industry average.

The consensus revenue estimate of $535.32 million for the fiscal year ending December 2023 indicates a 7.7% year-over-year improvement. Furthermore, analysts expect the company’s EPS to grow 88% year-over-year during the same period.

XPER has gained 2.9% over the past five days to close the last trading session at $8.61.

XPER’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

The stock has a B grade for Growth, Sentiment, and Quality. Within the B-rated Semiconductor & Wireless Chip industry, XPER is ranked #3 of 92 stocks.

Beyond what we stated above, we also have XPER’s ratings for Momentum, Value, and Stability. Get all XPER ratings here.

MSFT shares rose $2.37 (+0.99%) in premarket trading Tuesday. Year-to-date, MSFT has gained 1.07%, versus a 0.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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