Growth stocks got pummeled in 2022 due to various macroeconomic and geopolitical headwinds. However, they are expected to stage a recovery this year with the expected slowdown in interest rate hikes in response to easing inflation.
The consumer price index rose 6.4% year-over-year in January, down from 6.5% in December and the peak of 9.1% in June. The central bank acknowledged the cooling inflation and raised interest rates by 25 basis points this month, the smallest increase since it began hiking rates in March last year.
Significant moderation in inflation fed investors’ hopes that the economy could achieve a soft landing. Also, according to Goldman Sachs CEO David Solomon, the odds of the economy avoiding a deep recession this year seem to have improved. Although he cautioned that economic uncertainty is high, business leaders seemed to be more optimistic than last year.
Amid improving market sentiment, stocks that took a beating last year are showing uptrends lately. The S&P 500 and Nasdaq Composite registered nearly 5% and 9% gains over the past month, respectively. Investors’ interest in growth stocks is evident from the Vanguard Growth ETF’s (VUG) 6.8% returns over the past month.
Against the backdrop, investors could consider buying fundamentally sound stocks Salesforce, Inc. (CRM), ADT Inc. (ADT), and The ODP Corporation (ODP), which possess significant growth potential.
Salesforce, Inc. (CRM)
CRM is a provider of customer relationship management technology. The company’s Customer 360 platform enables its customers to work together to deliver connected experiences. Its service offerings include Sales, Marketing, and Commerce. CRM provides its service offering for customers in financial services, healthcare, manufacturing, and other industries.
On January 12, 2023, CRM introduced a series of innovations to help retailers personalize every shopping moment.
Jujhar Singh, EVP and GM of Salesforce Industries, said, “Salesforce for Retail brings together the power and flexibility of Salesforce’s platform with an expansive ecosystem so retailers can leverage real-time data to acquire new customers, deliver personalized experiences, generate advertising revenue, increase margins, and drive efficiency.”
Also, on December 8, 2022, CRM announced that Genie Customer Data Cloud is now powered by Tableau, allowing businesses to understand better and unlock customer data and deliver actionable insights in real-time and at scale. Companies can analyze billions of data points stored in Genie using Tableau, visualize and automate insights, and take action securely.
Genie Customer Data Cloud witnessed massive adoption, powering more than 43 consumer engagements and ingesting 1.1 trillion records for CRM customers during Cyber Week 2022. A set of new innovations might extend CRM’s customer reach and boost its profitability.
For the fiscal 2023 third quarter ended October 31, 2022, CRM’s subscription and support revenue increased 13.4% year-over-year to $7.23 billion, while its professional services and other revenue came in at $604 million, up 24.8% year-over-year. Also, its total revenues grew 14.2% year-over-year to $7.84 billion.
Furthermore, the company’s gross profit came in at $5.75 billion, an increase of 14.5% year-over-year. Its income from operations was $460 million, up 1,110.5% year-over-year.
CRM’s revenue has grown at a 24.9% CAGR over the past five years, while its EBITDA and net income have increased at CAGRs of 21% and 22.1%, respectively.
Analysts expect CRM’s revenue for the fiscal year (ending January 2024) to come in at $34.27 billion, indicating an increase of 10.4% year-over-year. The consensus EPS estimate of $5.84 for the ongoing year indicates an 18.5% year-over-year increase. Moreover, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in each of the trailing four quarters.
CRM’s shares have gained 13.8% over the past month to close the last trading session at $168.11. The stock is currently trading above its 50-day and 200-day moving averages of $160.36 and $148.34, respectively, indicating an uptrend.
CRM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CRM has an A grade for Growth and a B for Sentiment. Within the Software – Application industry, it is ranked #25 out of 137 stocks.
Click here to access the additional POWR Ratings for CRM (Value, Momentum, Stability, and Quality).
ADT Inc. (ADT)
ADT provides security, automation, and smart home solutions to consumer and business customers. It offers a range of fire detection, fire suppression, video surveillance, and access control systems. The company serves residential, commercial, and multi-site customers.
On January 5, 2023, ADT introduced new innovations in safety for home, mobile, and commercial applications at CES 2023. “Our need for safety has only grown in importance, and the way consumers want it has evolved. ADT can be an active, helpful and thoughtful guardian inside your smart home and beyond,” said ADT Chief Technology Officer Raya Sevilla.
Moreover, on October 13, 2022, ADT announced that it had issued and sold to State Farm 133.30 million shares of ADT common stock in a private placement. Apart from the equity investment, State Farm has committed to putting $300 million to fund product and technology innovation, customer growth, and marketing activities relating to the partnership.
ADT’s total revenue increased 21.8% year-over-year to $1.60 billion in the fiscal third quarter that ended September 30, 2022. The company’s adjusted net income came in at $83 million, compared to an adjusted net loss of $54 million in the prior-year period. Also, its adjusted EBITDA grew 11.9% year-over-year to $620 million.
In addition, the company’s adjusted EPS came in at $0.10, compared to an adjusted loss per share of $0.07 from the prior-year quarter.
ADT’s revenue has grown at a CAGR of 6.9% over the past three years. Also, its EBIT has increased at an 18% CAGR over the same period.
Analysts expect ADT’s revenue and EPS for the current fiscal year (ending December 31, 2023) to increase 7.8% and 34.9% year-over-year to $6.86 billion and $0.72, respectively. Moreover, the company has topped the consensus revenue estimates in three of the trailing four quarters.
ADT is currently trading above its 200-day moving average of $8.03, indicating an uptrend. Over the past year, the stock has gained 4.3% to close the last trading session at $8.25.
ADT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
Within the Home Improvement & Goods industry, ADT is ranked #6 out of 60 stocks. The stock has an A grade for Growth and a B for Stability and Sentiment.
Click here to see the additional POWR Ratings of ADT (Value, Momentum, and Quality).
The ODP Corporation (ODP)
ODP provides business services and supplies, products, and digital workplace technology solutions for small, medium, and enterprise businesses. The company operates in two divisions, Business Solutions; and Retail.
On January 6, 2023, it was announced that ODP had selected HCLTech as its primary IT partner to support its business strategy. ODP’s CEO, Gerry Smith, believes that HCLTech’s extensive IT expertise provides greater agility and differentiated IT capabilities to help accelerate ODP’s transformation and position it to expand services to its customers.
For the fiscal third quarter that ended September 24, 2022, ODP’s operating cash flow from continuing operations came in at $163 million, up 34.7% year-over-year. Its adjusted free cash flow was $138 million, compared to $123 million in the prior-year period. Also, the company’s earnings per share from continuing operations increased 2.3% from the year-ago period to $1.36.
Over the past three years, the company’s EPS and total assets have grown at CAGRs of 85.4% and 7.6%, respectively.
ODP’s EPS and revenue for the fourth quarter that ended December 2022 are expected to increase 10.7% and 4.6% year-over-year to $0.79 and $2.14 billion, respectively. Also, the company has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 35% over the past six months and 14.2% over the past year to close the last trading session at $51.06. It is currently trading above its 50-day and 200-day moving averages of $48.82 and $40.68, respectively, indicating an uptrend.
It is no surprise that ODP has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The stock has an A grade for Growth and Quality and a B for Value.
ODP is ranked first out of 45 stocks in the Specialty Retailers industry. Click here to see the POWR Ratings of ODP for Momentum, Stability, and Sentiment.
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CRM shares were trading at $163.80 per share on Friday morning, down $4.31 (-2.56%). Year-to-date, CRM has gained 23.54%, versus a 5.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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