A stubbornly elevated inflation and stronger-than-expected readings from the job report have kept investors at a crossroads about the Fed’s next move. During times of macroeconomic uncertainty, investors must look for stocks with strong fundamentals and solid long-term growth prospects available at a cheap valuation.
The Personal Consumption Expenditures (PCE) price index, excluding food and energy costs, rose 4.7% on an annual basis and 0.4% sequentially. In addition, nonfarm payrolls in May increased by 339,000, higher than the 190,000 Dow Jones estimate. It marked the 29th straight month of positive job growth.
Such resilient strength of the economy and the elevated readings on inflation reinforces the chances of interest rates staying higher for longer. The policymakers will likely skip a rate hike in June. However, hikes are expected to resume later in the year.
As value stocks tend to outperform their growth counterparts amid high-interest rates, fundamentally strong stocks NVO, NVS, and NTCT could be valuable additions to your portfolio.
Let’s take a look at the stocks mentioned above:
Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the discovery, development, manufacturing, and marketing of pharmaceutical products. It operates through two business segments: Diabetes and Obesity care; and Biopharm.
On March 2, one of the company’s major R&D centers outside of Denmark was created with the announcement of the development of its Research and Development (R&D) presence in the greater Boston metro region.
Marcus Schindler, Ph.D., executive vice president for Research & Early Development and chief scientific officer of NVO, said, “We are committing to further expansion and to having a major life sciences presence in the Boston area, to support pipeline expansion into new modalities, with the ultimate goal of delivering new innovative medicines to people living with chronic diseases.”
In terms of forward non-GAAP PEG, NVO is trading at 1.54x, 22.4% lower than the industry average of 1.99x.
For the fiscal first quarter that ended March 31, 2023, NVO’s net sales increased 26.9% year-over-year to Kr53.37 billion ($7.68 billion), while its operating profit came in at Kr17.09 billion ($3.59 billion), up 30.6% year-over-year. The company’s net profit came in at Kr13.59 billion ($2.85 billion) and Kr8.78 per share, representing 39.4% and 41.2% increases year-over-year, respectively.
The consensus revenue estimate of $7.75 billion for the second quarter ending June 30, 2023, reflects a 37.5% year-over-year growth. The consensus EPS estimate of $1.31 for the ongoing quarter indicates a 63% improvement year-over-year. Moreover, NVO surpassed the consensus revenue estimates in three of the four trailing quarters.
The stock has gained 51.3% over the past nine months to close the last trading session at $157.98.
NVO’s promising fundamentals are apparent in its POWR Ratings. 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.
It has an A grade for Quality and a B for Growth, Value, Momentum, Stability, and Sentiment. Out of 168 stocks in the Medical – Pharmaceuticals industry, it is ranked #2. Click here to see all ratings for NVO.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide through two segments: Innovative Medicines and Sandoz.
On May 4, Sandoz signed a distribution and collaboration agreement with Adalvo for exclusive rights to commercialize six products across key therapeutic areas of anti-infectives and oncology. Slated to launch in the mid-term of 2024, these products have a market size of approximately $3 billion, further advancing the Sandoz product pipeline in the key U.S. generics market.
On April 21, the FDA approved NVS’ Radioligand Therapy (RLT) manufacturing facility in Millburn for U.S. commercial production of Pluvicto. The site is expected to contribute meaningfully to ensure a stable and reliable supply to patients in the third quarter.
In terms of forward non-GAAP P/E, NVS is trading at 13.76x, 29% lower than the industry average of 19.39x. Its forward EV/EBIT multiple of 12.29 is 23.3% lower than the industry average of 16.03x. In addition, NVS’ forward Price/Sales ratio of 3.77 is 11.2% lower than the industry average of 4.24.
For the fiscal first quarter that ended March 31, 2023, NVS’ net sales increased 3.4% year-over-year to $12.95 billion. Its operating income grew marginally from the year-ago value to $2.86 billion.
During the same period, its net income and EPS came in at $2.29 billion and $1.09, representing 3.4% and 9% year-over-year increases, respectively. In addition, its free cash flow improved by 95.4% from the prior-year quarter to $2.72 billion.
The consensus EPS estimate of $1.74 for the second quarter (ending June 30, 2023) represents an 11.3% improvement year-over-year. The consensus revenue estimate of $13.24 billion for the current quarter represents a 3.6% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 28.2% over the past six months. It closed the last trading day at $97.11.
NVS’ POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It also has an A grade for Growth, Stability, and Quality and a B for Value and Sentiment. Within the Medical – Pharmaceuticals industry, it is ranked first among 168 stocks. Click here to see the NVS rating for Momentum.
NetScout Systems, Inc. (NTCT)
NTCT provides assurance and cybersecurity solutions. Its primary products are Service Assurance Solutions for network and application performance, business intelligence analytics, and cybersecurity solutions.
On May 23, the company unveiled Arbor® Sightline Mobile and MobileStream to strengthen the mobile security for 4G/5G mobile consumer services and network infrastructure. The new solution provides MNOs with comprehensive visibility into their mobile traffic to detect and manage cyberthreats in a scalable way, to quickly eliminate mobile subscriber and device disruptions.
As mobile threat activity expands with a three-fold increase in traffic growth, such threat detection technologies could witness strong demand.
In terms of forward non-GAAP P/E, NTCT is trading at 13.63x, 36.5% lower than the industry average of 21.44x. The stock’s forward EV/EBIT of 9.27x is 47.9% lower than the 17.81x industry average. Furthermore, the stock’s forward EV/EBITDA of 8.24x is 42.3% lower than the 14.28x industry average.
NTCT’s total revenue increased 8.8% year-over-year to $208.09 million in the fourth quarter (ended March 31, 2023), while its gross profit grew 9.5% from the year-ago value to $157.15 million. Its non-GAAP income from operations increased 37.9% year-over-year to $32.71 million.
In addition, its non-GAAP net income amounted to $27.18 million and $0.38 per share, representing increases of 25.6% and 31% from the prior-year quarter, respectively.
Analysts expect NTCT’s EPS for the fiscal year 2023 (ending March 2024) to increase 2.7% year-over-year to $2.24. Its revenue estimate of $916.90 million for the current year is expected to increase marginally year-over-year. Moreover, it surpassed the EPS estimates in three of the trailing four quarters.
Over the past month, the stock has gained 13% to close the last trading session at $30.42.
It’s no surprise that NTCT has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Growth and Value and a B for Sentiment and Quality. Out of 82 stocks in the Technology – Services industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have NTCT’s ratings for Momentum and Stability. Get all NTCT ratings here.
What To Do Next?
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NVO shares were trading at $157.26 per share on Friday afternoon, down $0.72 (-0.46%). Year-to-date, NVO has gained 16.86%, versus a 12.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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