It has been a disappointing year for the stock market as most businesses struggled to survive the macroeconomic and geopolitical headwinds. The Nasdaq Composite has lost 28.2% year-to-date.

However, the Fed has reassessed the pace of rate hikes considering the uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation. Therefore, we could see easing pressure on the stock market.

Despite the Nasdaq’s underperformance this year, its constituents PepsiCo, Inc. (PEP) and O’Reilly Automotive Inc. (ORLY) have outperformed due to their strong fundamentals and solid growth prospects.

Despite fears of an impending recession, PEP and ORLY could be favorable investments for investors, given their financial resilience and growth outlook. On the other hand, it could be wise to avoid Marvell Technology, Inc. (MRVL) due to its weak fundamentals and poor growth prospects.

Stocks to Buy:

PepsiCo, Inc. (PEP)

PEP manufactures, markets, distributes and sells various beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region.

Over the last three years, PEP’s dividend payouts have grown at a 5.7% CAGR. Its four-year average dividend yield is 2.80%, and its forward annual dividend of $4.60 per share translates to a 2.50% yield. It is expected to pay a quarterly dividend of $1.15 per share on January 6, 2023.

On September 14, 2022, ADM (ADM) and PEP announced a 7.5-year strategic commercial agreement to collaborate closely on projects that aim to expand regenerative agriculture. 

Chief Sustainability Officer at PEP, Jim Andrew, believes this partnership will help PEP reach almost one-third of its goal to reduce carbon emissions to 7 million acres by 2030. He hopes that strategic partnerships such as this will strengthen the livelihoods and resilience of the farmers’ PEP works with, building a more sustainable future together.

PEP’s net revenue for the third quarter ended September 3, 2022, increased 8.8% year-over-year to $21.97 billion. The company’s non-GAAP operating profit increased 10.9% year-over-year to $3.60 billion, while its non-GAAP net income attributable to PEP increased 10% year-over-year to $2.73 billion. Also, its adjusted EPS increased 10% from the prior-year period to $1.97.

Analysts expect PEP’s EPS and revenue for the quarter ending December 31, 2022, to increase 7.2% and 5.3% year-over-year to $1.64 and $26.59 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 12.4% over the past year and 6% year-to-date to close the last trading session at $184.11.

PEP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #10 out of 34 stocks in the A-rated Beverages industry. It has an A grade for Quality and a B for Growth, Stability, and Sentiment.

We have also given PEP grades for Value and Momentum. Get all PEP ratings here.

O’Reilly Automotive, Inc. (ORLY)

ORLY operates as a retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories. The company provides new and remanufactured automotive hard parts, maintenance, and accessories. It also offers auto body paint and related materials, automotive tools, and professional service provider service equipment.

For the fiscal third quarter ended September 30, 2022, ORLY’s sales increased 9.2% year-over-year to $3.80 billion. The company’s gross profit increased 6.4% year-over-year to $1.93 billion. Its net income increased 4.8% from the year-ago period to $585.44 million. Additionally, its EPS came in at $9.17, representing a 13.6% increase from the prior-year quarter.

ORLY’s EPS and revenue for the quarter ending December 31, 2022, are expected to increase 1.2% and 6.4% year-over-year to $7.73 and $3.50 billion, respectively. The stock has gained 21.2% year-to-date and 32.4% over the past year to close the last trading session at $855.97.

It is no surprise that ORLY has an overall rating of B, which translates to a Buy in our proprietary rating system. It is ranked #13 out of 63 stocks in the B-rated Auto Parts industry. It has an A grade for Quality and a B for Sentiment.

Click here to see ORLY’s additional ratings for Growth, Value, Momentum, and Stability.

Stock to Avoid:

Marvell Technology, Inc. (MRVL)

MRVL designs, develops, and sells analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. It offers a portfolio of Ethernet solutions, single or multiple core processors, ASIC, and printer System-on-a-Chip products and application processors. The company also provides a range of storage products.

MRVL’s total non-GAAP operating expenses for the fiscal second quarter ended July 30, 2022, increased 17.8% year-over-year to $431.60 million. The company’s total liabilities increased 3.5% to $6.63 billion, compared to $6.40 billion for the fiscal year ended January 29, 2022.

The stock has fallen 50.9% year-to-date and 41.8% over the past year to close the last trading session at $42.98.

MRVL’s bleak prospects are reflected in its POWR Ratings. The company has an overall rating of D, which equates to a Sell in our proprietary rating system. It is ranked #80 out of 93 stocks in the Semiconductor & Wireless Chip industry. In addition, it has a D grade for Stability and Quality.

In total, we rate MRVL on eight different levels. Beyond what we stated above, we have also given MRVL grades for Growth, Value, Momentum, and Sentiment. Get all MRVL ratings here.

PEP shares were trading at $184.73 per share on Monday morning, up $0.62 (+0.34%). Year-to-date, PEP has gained 8.51%, versus a -15.11% 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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