The recently released strong macroeconomic data, followed by concerns over the financial system's stability due to bank failures, has rocked investor sentiment. However, this should not deter long-term investors from investing in Walmart Inc. (WMT), Cisco Systems, Inc. (CSCO), and AudioCodes Ltd. (AUDC), given their strong fundamentals and solid growth prospects.
Before we delve deeper into the fundamentals of these stocks, let’s discuss the recent developments affecting investor sentiment.
Over the past year, the Federal Reserve has been trying to cool demand by aggressively tightening the monetary policy. Concerns over high inflation led to the central bank increasing interest rate eight times since last year.
Inflation has shown a downward trend as it fell for the eighth consecutive month in February. However, inflation remains above the Fed’s comfort level. In addition, the labor market remained resilient, with low unemployment rates and strong nonfarm payroll additions in February.
With this spate of strong macroeconomic data, the Fed was expected to hike the interest rate by 50 basis points. However, the failures of the Silicon Valley Bank and Signature Bank have rocked the financial system. The central bank will likely opt for a smaller or no rate hike at the monetary policy meeting scheduled for tomorrow to restore stability to the financial markets.
The central bank will likely return to its aggressive rate-hiking spree when the banking crisis eases. This is expected to put the stock market under further pressure in the upcoming months.
Let’s discuss why it could be wise to buy and hold WMT, CSCO, and AUDC.
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club.
On January 5, 2023, WMT announced that it was now operating 36 drone delivery hubs across seven states. It completed more than 6,000 deliveries over the past year in as little as 30 minutes. The company is well positioned to offer drone delivery at scale; with its 4,700 stores located within 90% of the U.S. population, it will be able to deliver more items through drones helping it cut costs and drive higher revenues.
Over the last three years, WMT’s dividend payouts have grown at a 1.8% CAGR. Its four-year average dividend yield is 1.67%, and its forward annual dividend of $2.28 per share translates to a 1.62% yield. It paid a quarterly dividend of $1.13 per share on March 7, 2023.
In terms of the trailing-12-month Return on Common Equity, WMT’s 14.60% is 39.3% higher than the 10.48% industry average. Its 4.80% trailing-12-month Return on Total Assets is 15.2% higher than the 4.17% industry average. Likewise, its 2.50x trailing-12-month asset turnover ratio is 194.2% higher than the industry average of 0.85x.
WMT’s total revenues for the fourth quarter ended January 31, 2023, increased 7.3% year-over-year to $164.05 billion. Its adjusted operating income rose 6.9% year-over-year to $6.41 billion. The company’s consolidated net income attributable to WMT increased 76.2% year-over-year to $6.28 billion. In addition, its adjusted EPS came in at $1.71, representing an 11.8% increase from the year-ago quarter.
WMT’s revenue for the quarter ending April 30, 2023, is expected to increase 5% year-over-year to $147.36 billion. Its EPS for fiscal 2025 is expected to increase 11.3% year-over-year to $6.79. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 19.1% to close the last trading session at $140.90.
WMT’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 POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Grocery/Big Box Retailers industry, it is ranked #3 out of 37 stocks. It has an A grade for Stability and a B for Growth, Sentiment, and Quality. Click here to see the other ratings of WMT for Value and Momentum.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells internet protocol-based networking and other products across networking, security, collaboration, applications, and the cloud. The company operates through three geographic segments: the Americas; Europe, the Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
On February 27, 2023, CSCO announced that it was working with Mercedes Benz to provide an optimal mobile office experience in its new Mercedes-Benz E-Class vehicles. These vehicles will be equipped with Webex Meetings and Calling and utilize Webex AI audio capabilities to enable greater flexibility for the hybrid workforce.
Over the last three years, CSCO’s dividend payouts have grown at a 2.8% CAGR. Its four-year average dividend yield is 3%, and its forward annual dividend of $1.56 per share translates to a 3.06% yield. It is expected to pay a quarterly dividend of $0.39 per share on April 26, 2023.
In terms of the trailing-12-month net income margin, CSCO’s 21.26% is 686.6% higher than the 2.70% industry average. Likewise, its 29.74% trailing-12-month EBITDA margin is 201.5% higher than the industry average of 9.87%. Furthermore, the stock’s 61.92% trailing-12-month gross profit margin is 23.4% higher than the industry average of 50.17%.
CSCO’s total revenue increased 6.9% year-over-year to $13.59 billion for the second quarter ended January 28, 2023. The company’s non-GAAP net income increased 2.6% year-over-year to $3.64 billion. Its non-GAAP EPS came in at $0.88, representing an increase of 4.8% year-over-year. In addition, its non-GAAP operating income increased 1% year-over-year to $4.40 billion.
Analysts expect CSCO’s EPS and revenue for the quarter ending April 30, 2023, to increase 11.3% and 11.9% year-over-year to $0.97 and $14.36 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 19.6% to close the last trading session at $50.94.
CSCO’s POWR Ratings reflect solid prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Momentum, Stability, and Sentiment. It is ranked #3 out of 49 stocks in the B-rated Technology – Communication/Networking industry. Click here to see the other ratings of CSCO for Growth and Value.
AudioCodes Ltd. (AUDC)
Headquartered in Lod, Israel, AUDC is a leading vendor of advanced voice networking and media processing solutions for the digital workplace. It offers solutions, products, and services for unified communications, contact centers, VoiceAI business lines, and service provider businesses.
Over the last three years, AUDC’s dividend payouts have grown at a 12.9% CAGR. Its four-year average dividend yield is 1.26%. The company paid a dividend of $0.18 per share on March 7, 2023.
In terms of the trailing-12-month net income margin, AUDC’s 10.35% is 282.8% higher than the 2.70% industry average. Likewise, its 11.38% trailing-12-month EBIT margin is 144.8% higher than the industry average of 4.65%. Furthermore, the stock’s 6.95% trailing-12-month levered FCF margin is 14.3% higher than the industry average of 6.08%.
AUDC’s total revenues increased 10.5% year-over-year to $275.09 million for the fiscal year ended December 31, 2022. Its gross profit rose 4.6% year-over-year to $178.78 million. The company’s non-GAAP net income and adjusted EPS came in at $44.95 million and $1.35, respectively.
Analysts expect AUDC’s revenue for the quarter ended March 31, 2023, to increase 0.8% to $66.88 million. Its EPS for fiscal 2023 is expected to increase 3.4% year-over-year to $1.40. Over the past month, the stock has declined 18.8% to close the last trading session at $14.17.
AUDC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value, Momentum, and Stability. It is ranked #5 out of 49 stocks in the Technology – Communication/Networking industry. Click here to see the other ratings of AUDC for Growth and Sentiment.
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WMT shares rose $0.61 (+0.43%) in premarket trading Tuesday. Year-to-date, WMT has declined -0.22%, versus a 2.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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