Amid earnings season, it could be wise to keep owning Microsoft Corporation (MSFT) as it keeps setting the benchmark for AI solutions dispensed over the cloud.
Additionally, it could be opportune to invest in General Electric Company (GE) as electrification and decarbonization of energy gather steam in a year that’s expected to see fossil fuel usage peak.
However, the lack of fundamental strength of DISH Network Corporation (DISH) might mean more unpleasant surprises for its backers. Hence, it could be wise to jettison the stock while there is still an opportunity to do so.
Although March’s Producer Price Index (PPI) declined 0.5% from the prior month, registering its largest drop since April 2020, and the Consumer Price Index (CPI) data has also indicated the cumulative effectiveness of interest-rate hikes by the Federal Reserve, analysts expect profits at S&P 500 companies to have declined 4.8% in the first quarter of 2023 from the year-earlier period.
If it comes to pass, a second consecutive drop in year-over-year earnings growth would translate into the first "earnings recession" since the pandemic and undercut and undermine the market buoyancy.
With the tantrums of Mr. Market expected to continue in the foreseeable future, let’s take a closer look at the featured stocks.
Stock to Own:
Microsoft Corporation (MSFT)
Being one of the global technology giants, MSFT needs no introduction. The company operates through three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.
On March 14, MSFT announced a quarterly dividend of $0.68 per share that would be payable June 8, 2023, to shareholders of record on May 18, 2023. MSFT pays $2.72 per share annually as a dividend, representing a yield of 0.94% at the current price, comparable to the 4-year average dividend yield of 1%.
MSFT has raised its dividends for 18 consecutive years and at a 9.9% CAGR over the past five years.
On January 23, MSFT announced the third phase of its long-term partnership with OpenAI, the creator behind category-defining AI products, such as DALL·E 2 and ChatGPT, through a multiyear, multibillion-dollar investment that follows its previous investments in 2019 and 2021.
This investment would further MSFT’s ambition of building Azure into an AI supercomputer, deploying OpenAI’s models across its consumer and enterprise products, and introducing new categories of digital experiences built on OpenAI’s technology.
According to Satya Nadella, chairman and chief executive officer of MSFT, “The next major wave of computing is being born, as the Microsoft Cloud turns the world’s most advanced AI models into a new computing platform.”
Justifying MSFT’s optimism regarding artificial intelligence and cloud computing, for the first quarter of the fiscal year 2023 ended December 31, MSFT’s Cloud revenue was $27.1 billion, up 22% year-over-year as its commercial offerings continued to drive value for its customers. The company’s total revenue came in at $52.7 billion, up 2% year-over-year.
During the same period, MSFT’s non-GAAP operating income came in at $21.6 billion, down 3% year-over-year, while its non-GAAP net income came in at $17.4 billion, or $2.32 per share.
MSFT’s trailing-12-month EBITDA and net income margins of 47.99% and 33.05% are significantly higher than the industry averages of 9.30% and 2.69%, respectively. Similarly, its trailing-12-month ROCE, ROTC, and ROTA of 39.31%, 20.84%, and 18.50% also compare favorably to their respective industry averages of 1.96%, 2.06%, and 0.67%.
Analysts expect MSFT’s revenue for the fiscal year ending June 2023 to come in at $208.92 billion, representing an increase of 5.4% year-over-year, while the company’s EPS is expected to increase 1.5% year-over-year to $9.34. The company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in three of the trailing four quarters.
MSFT’s stock has gained 2.6% over the past month and 21.6% over the past six months to close the last trading session at $288.80.
MSFT’s POWR Ratings are consistent with its balanced outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MSFT also has a C grade for Value and Momentum and B for Stability, Sentiment, and Quality.
MSFT is ranked #14 of 51 stocks in the Software - Business category. Click here for all ratings of MSFT.
Stock to Buy:
General Electric Company (GE)
As a global conglomerate, GE operates through three major segments: Aerospace; Renewable Energy and Power; and Healthcare.
On April 17, GE announced the completion of the Swiss Federal Office of Energy (SFOE)’s temporary reserve power plant located at GE’s Manufacturing Center in Birr, approximately 30 km west of Zurich, in a record 26 weeks.
The 250-megawatt (MW) plant, powered by eight of GE’s trailer-mounted TM2500 mobile aero-derivative gas turbines, with high fuel flexibility to burn natural gas blended with hydrogen or biodiesel, will help meet power demand, help prevent power shortages and enhance the critical reliability of the country’s energy supply.
On April 14, GE Power Conversion commissioned shore power system converters to enable ships visiting the port of Brest in France to connect to the port’s electrical power and turn their engines off in port to help reduce carbon emissions and noise pollution.
With dynamic power management capability, the conversion systems can be reconfigured automatically according to the needs of different ships berthed in port without interruption to the electrical power supply.
On March 31, GE announced that it had reached an amicable settlement with Siemens Gamesa Renewable Energy S.A. (GCTAY) regarding their wind turbine technology patent disputes in the United States and Europe. Both companies have granted each other, and their respective subsidiaries, worldwide cross licenses under the asserted patent families for the life of those patent families.
On January 4, GE completed separating its healthcare business by distributing approximately 80.1% of its shares to GE shareholders, at one share of GE HealthCare common stock for every three shares of GE common stock. GE HealthCare Technologies Inc. started trading on Nasdaq under the ticker symbol “GEHC.”
For the fourth quarter of fiscal 2022, which ended December 31, 2022, GE’s total revenues increased 7.3% year-over-year to $21.79 billion. During the same period, its organic revenues also increased 11.2% year-over-year to $21.71 billion.
The organic revenue and profit of its Aerospace business increased by 25.7% and 16.4% year-over-year. Despite a 12.6% year-over-year decrease in revenue and a 12.1% year-over-year widening of losses in the renewable energy segment, GE’s adjusted profit increased 37.5% year-over-year to $2.16 billion, while its adjusted EPS increased 51.2% over the previous-year quarter to come in at $1.24.
GE’s revenue and EPS for the fiscal year 2023 are expected to come in at $62.81 billion and $1.98, respectively. Both the metrics are expected to increase by a further 8.5% and 100.8% during the next fiscal to come in at $68.14 billion and $3.98, respectively.
The stock has gained 7.3% over the past month and 80.7% over the past six months to close the last trading session at $96.77.
GE has an overall rating of B, which translates to a Sell, in our POWR Ratings system. It also has a B grade for Growth, Momentum, and Sentiment.
GE is ranked #9 of 36 stocks in the A-rated Industrial - Manufacturing category.
Click here for additional ratings for Stability, Value, and Quality of GE.
Stock to Sell:
DISH Network Corporation (DISH)
DISH is a holding company whose subsidiaries operate through two business segments: Pay-TV and Wireless. The former offers Pay-TV services under the DISH and the SLING brand, while the latter operates in two business units: Retail Wireless and 5G Network Deployment.
On January 17, DISH placed an offering of its 11.750% Senior Secured Notes due 2027 for an aggregate principal amount of $1.5 billion. This followed the issuance of $2 billion of 11.750% Senior Secured Notes due 2027 on November 15, 2022.
The current offering has been priced at 102% of the principal amount, and its net proceeds are intended to be used for general corporate purposes, including the buildout of wireless infrastructure. Resorting to debt financing in an environment of increasing interest rates could compromise the strength of the company’s balance sheet while keeping its margins under pressure.
During the fiscal year that ended December 31, 2022, DISH’s total revenue declined by 6.7% year-over-year to $16.68 billion. During the same period, the company’s consolidated EBITDA declined by 4.4% year-over-year to $3.73 billion, while its operating income declined by 36.1% year-over-year to $2.05 billion.
As a result, the net income attributable to DISH declined by 4.5% and 4.7% year-over-year to $2.30 billion, or $3.61 per share, respectively.
DISH’s trailing-12-month gross profit margin of 31.83% is 36.6% below the industry average of 50.22%, while its trailing-12-month EBITDA margin of 16.56% is 3.1% below the industry average of 17.09%. Moreover, the trailing-12-month Return On Total Capital (ROTC) of 3.14% compares unfavorably with the industry average of 3.54%.
DISH’s revenue and EPS for the first quarter of the fiscal year that ended March 31, 2023, are expected to decline by 6.2% and 42.6% year-over-year to come in at $4.06 billion and $0.39, respectively. For the fiscal year 2023, its revenue and EPS are expected to decline by 3.4% and 68.6% year-over-year, to come in at $16.12 billion and $1.13, respectively.
The stock has lost 12.1% and 41.3% of its value over the past month and six months, respectively, to close the last trading session at $8.16.
DISH’s bleak outlook is reflected in its POWR Ratings. It has an overall D rating, equating to a Sell in our proprietary rating system. It has an F grade for Quality and a D for Growth and Sentiment.
Unsurprisingly, DISH is ranked last of 9 stocks in the F-rated Entertainment - TV & Internet Providers industry.
Click here for additional ratings of DISH’s Value, Stability, and Momentum.
What To Do Next?
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What gives these stocks the right stuff to become big winners, even in this brutal stock market?
First, because they are all low priced companies with the most upside potential in today’s volatile markets.
But even more important, is that they are all top Buy rated stocks according to our coveted POWR Ratings system and they excel in key areas of growth, sentiment and momentum.
Click below now to see these 3 exciting stocks which could double or more in the year ahead.
MSFT shares were trading at $287.56 per share on Tuesday afternoon, down $1.24 (-0.43%). Year-to-date, MSFT has gained 20.21%, versus a 8.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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