Higher-than-anticipated inflation and a strong economy could prompt the Fed to raise rates higher and hold them elevated for longer. Markets have been highly volatile lately amid renewed fears about potential rate hikes and other macro uncertainties.
Therefore, high-quality stocks BHP Group Limited (BHP), Cisco Systems, Inc. (CSCO), and Ennis, Inc. (EBF) could make worthy additions to your portfolio, offering a viable shield against economic turbulence.
A year has elapsed since the Fed initiated its first attempt to combat inflation. Although it has exhibited a decline, inflation remains insufficient to negate the necessity for additional rate hikes. Moreover, inflation surged higher than expected in January, with the Consumer Price Index (CPI) accelerating by 6.4% year-over-year and 0.5% for the month, exceeding economists’ estimates of 6.2% and 0.4%, respectively.
Furthermore, recent economic data, including strong retail sales and a robust labor market, pointed to persisting inflationary pressures, which will likely underscore the Fed’s resolve to keep raising rates to lower inflation. Fed minutes warn of more rate hikes to bring inflation down to their target of 2%.
Moreover, they showed that the participants preferred a 50-basis-point increase, noting that a larger increase would hasten the approach toward the targeted range.
The Fed’s potential interest rate increases could likely keep the stock market highly volatile in the near future. Amid a volatile market backdrop, investors could consider buying high-quality stocks BHP, CSCO, and EBF for solid returns.
BHP Group Limited (BHP)
BHP is a multinational resources company with its headquarters in Melbourne, Australia. The company's global operations include the mining, smelting, and refining of nickel, as well as potash development activities. It operates through Copper; Iron Ore; and Coal segments.
On February 21, 2023, Mike Henry, BHP's Chief Executive Officer, said, “We are positive about the demand outlook in the second half of FY23 and into FY24.” He added, “The long-term outlook for our commodities remains strong given population growth, rising living standards, and the metals intensity of the energy transition, including for steel-making raw materials.”
On December 12, 2022, I-Pulse Inc. and I-ROX SAS entered into a comprehensive collaboration with BHP to identify and develop applications of pulsed-power technology across several aspects of the mining industry. The partnership should open up new growth opportunities and add to BHP’s expanding portfolio.
BHP’s trailing 12-month gross profit margin of 85.10% is 186% higher than the industry average of 29.76%. Likewise, the stock’s trailing-12-month EBITDA margin and net income margin of 53.42% and 46.09% compare to the industry averages of 19.19% and 7.69%, respectively.
BHP’s financial income grew 744% year-over-year to $211 million during the half-year that ended December 31, 2022. As of December 31, 2022, the company’s total non-current assets stood at $67.72 billion, compared to $66.50 billion as of June 30, 2022. Moreover, BHP’s total current liabilities were $11.89 billion versus $16.92 billion as of June 30, 2022.
The consensus EPS estimate of $5.10 for the fiscal year ending June 2024 reflects a 27% year-over-year improvement. Shares of BHP have gained 26.6% over the past six months to close the last trading session at $63.16.
BHP’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Stability and Value. In the 37-stock Industrial - Metals industry, it is ranked #3.
Beyond what we stated above, we also have BHP’s ratings for Growth, Sentiment, and Momentum. Get all BHP’s ratings here.
Cisco Systems, Inc. (CSCO)
CSCO develops, manufactures, and distributes Internet Protocol-based networking and other communications and information technology products. Additionally, the company offers a range of customer service and support solutions, such as technical assistance, advanced services, and advisory services.
On February 27, 2023, CSCO and T-Mobile US, Inc (TMUS) announced plans to provide enterprises CSCO Meraki's first-ever 5G cellular gateways for fixed wireless connectivity. With streamlined, scalable, and dependable network management services, businesses should be able to develop enriching and distinctive experiences for their customers.
With wireless communication being the future of connectivity, CSCO should significantly benefit from pioneering the new era of 5G.
On the same day, CSCO disclosed collaborating with Mercedes-Benz to offer a superior mobile office experience in the brand-new Mercedes-Benz E Class automobiles. The company could strategically benefit by addressing the needs of the ever-evolving hybrid workforce.
CSCO’s trailing 12-month gross profit margin of 61.92% is 25.9% higher than the industry average of 49.19%. Also, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 27.92%, 17.06%, and 11.79% compare to the respective industry averages of 4.97%, 3.21%, and 1.52%.
For the fiscal second quarter that ended January 28, 2023, CSCO’s total revenue grew 6.9% year-over-year to $13.59 billion, while its gross margin rose 4.7% from the year-ago value to $8.43 billion. Also, the company’s non-GAAP net income increased 2.6% year-over-year to $3.64 billion, and its non-GAAP EPS grew 4.8% from the prior year’s quarter to $0.88.
Analysts expect CSCO’s revenue to increase 9.7% year-over-year to $56.56 billion for the fiscal year ending July 2023. The company’s EPS for the ongoing year is expected to rise 11.7% from the previous year to $3.75. Moreover, CSCO surpassed its consensus EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 6.7% over the past six months to close the last trading session at $48.34.
CSCO’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
CSCO has an A grade for Quality and a B for Stability and Sentiment. It ranks #2 in the B-rated 50-stock Technology - Communication/Networking industry.
In addition to the POWR Ratings I’ve just highlighted, you can see CSCO’s ratings for Value, Growth, and Momentum here.
Ennis, Inc. (EBF)
EBF designs, manufactures, and distributes business forms and other office supplies. Additionally, it offers point-of-purchase advertising for major fast food and franchise companies.
On November 30, 2022, EBF announced the acquisition of School Photo Marketing in Morganville, New Jersey. School Photo Marketing provides printing, yearbook publishing, and marketing-related services to over 1,400 school and sports photographers, servicing schools nationwide.
The acquisition should open up several opportunities to serve the new channel with products manufactured by EBF. This is expected to benefit the company's operations and growth.
EBF’s trailing 12-month EBITDA margin and net income margin of 18.10% and 9.74% compare to the industry averages of 13.21% and 6.41%, respectively. Moreover, the stock’s trailing-12-month levered FCF margin of 8.39% is 128.3% higher than the 3.68% industry average.
EBF’s total revenues for its third quarter, which ended November 30, 2022, increased 7.1% year-over-year to $110.25 million. Its gross profit margin grew 14.6% from the year-ago value to $33.48 million, while its non-GAAP EBITDA rose 35.1% year-over-year to $15.67 million.
Additionally, the company’s net earnings came in at $11.29 million, reflecting a 49.2% year-over-year increase, and its EPS grew 51.7% from the prior-year quarter to $0.44.
Analysts expect EBF’s revenue to grow 7.7% year-over-year to $431 million for the fiscal year that ended February 2023. The company’s EPS for the same year is expected to increase 50% from the previous year to $1.71. Furthermore, EBF surpassed its consensus revenue and EPS estimates in three of four trailing quarters.
Shares of EBF have gained 17.1% over the past year to close the last trading session at $21.78.
EBF’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Stability, Growth, and Sentiment. It has topped the 56-stock Consumer Goods industry.
To see additional POWR Ratings for Value and Momentum for EBF, click here.
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BHP shares were trading at $63.91 per share on Thursday morning, up $0.75 (+1.19%). Year-to-date, BHP has gained 3.00%, versus a 3.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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