The banking crisis and the Fed’s determination to cool inflation with higher interest rate hikes are likely to tip the economy into a recession. Amid this backdrop, it could be wise for investors to focus on their long-term portfolios and buy fundamentally strong stocks Broadcom (AVGO), Coca-Cola (KO), and Casey’s General Stores (CASY) that are poised to generate steady returns. Keep reading.
Investors’ confidence has been dampened due to bank failures, high inflation, and a strong jobs market. Despite the headwinds, investors should not deter from investing in quality stocks.
I believe it could be wise for investors to buy and hold fundamentally strong stocks Broadcom Inc. (AVGO), The Coca-Cola Company (KO), and Casey’s General Stores, Inc. (CASY) to generate solid returns in the long term.
Before we delve deeper into the fundaments of these stocks, let’s discuss the factors keeping the stock market under pressure.
It was widely expected that the Fed would raise the interest rate by 50 basis points at the next policy meeting, as the labor market remained resilient in February and inflation is still far from the central bank’s comfort level.
However, the sudden collapse of the Silicon Valley Bank (SVB) and Signature Bank has changed the whole scenario. The financial regulators had to scramble to stabilize the financial sector. The Fed is now expected to opt for a 25 basis point rate hike.
Following the banking collapse, Goldman Sachs believes economic growth could slow as the banking industry will likely implement tougher lending standards going forward, meaning lending could be limited. The potential credit tightening, along with the Fed’s likely return to higher rate hikes, will likely fuel a recession this year.
Amid the backdrop, it could be wise for investors to invest in AVGO, KO, and CASY for the long term.
Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies various semiconductor devices focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products worldwide. The company operates in two segments, Semiconductor Solutions, and Infrastructure Software.
Over the last three years, AVGO’s dividend payouts have grown at a 13.8% CAGR. Its four-year average dividend yield is 3.23%, and its forward annual dividend of $18.40 per share translates to a 2.89% yield. It is expected to pay a quarterly dividend of $4.60 per share on March 31, 2023.
In terms of the trailing-12-month EBIT margin, AVGO’s 44.39% is 854.5% higher than the 4.65% industry average. Its 17.54% trailing-12-month Return on Total Assets is considerably higher than the industry average of 1.09%. Likewise, its 37.19% trailing-12-month net income margin is significantly higher than the industry average of 2.71%.
AVGO’s non-GAAP net revenue for the fiscal first quarter ended January 29, 2023, increased 15.7% year-over-year to $8.92 billion. The company’s non-GAAP net income increased 19.8% year-over-year to $4.48 billion.
Its adjusted EBITDA increased 17.8% year-over-year to $5.68 billion. Additionally, its non-GAAP EPS came in at $10.33, representing a 23.1% increase from the year-ago period.
AVGO’s EPS and revenue for the quarter ending April 31, 2023, are expected to increase 11.6% and 7.3% year-over-year to $10.12 and $8.70 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 32.1% to close the last trading session at $636.75.
AVGO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #7 out of 91 stocks in the B-rated Semiconductor & Wireless Chip industry. AVGO has an A grade for Quality and a B for Sentiment. We have also given AVGO grades for Growth, Value, Momentum, and Stability. Get all AVGO ratings here.
The Coca-Cola Company (KO)
Popular beverage company KO manufactures, markets, and sells various non-alcoholic beverages. The company provides sparkling soft drinks; flavored and enhanced water and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks.
Over the last three years, KO’s dividend payouts have grown at a 3.4% CAGR. Its four-year average dividend yield is 3.04%, and its forward annual dividend of $1.84 per share translates to a 3.05% yield. It is expected to pay a quarterly dividend of $0.46 per share on April 3, 2023.
In terms of the trailing-12-month EBIT margin, KO’s 28.49% is 273.1% higher than the 7.64% industry average. Its 40.51% trailing-12-month Return on Common Equity is 286.4% higher than the industry average of 10.48%. Likewise, its 18.17% trailing-12-month levered FCF margin is 647.1% higher than the industry average of 2.43%.
KO’s net operating revenues increased 7% year-over-year to $10.13 billion for the fourth quarter ended December 31, 2022. Its non-GAAP gross profit increased 6% year-over-year to $5.76 billion.
The company’s non-GAAP operating income increased 10.9% year-over-year to $2.32 billion. Its non-GAAP net income and non-GAAP EPS came in at $1.94 billion and $0.45, respectively.
Analysts expect KO’s EPS and revenue for the quarter ending March 31, 2023, to increase 0.9% and 2.9% year-over-year to $0.65 and $10.81 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 1.6% to close the last trading session at $60.32.
KO’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
Within the A-rated Beverages industry, it is ranked #20 out of 36 stocks. It has an A grade for Quality and a B for Stability. Click here to see the additional POWR Ratings of KO for Growth, Value, Momentum, and Sentiment.
Casey’s General Stores, Inc. (CASY)
CASY operates convenience stores under the Casey’s and Casey’s General Store names. It offers a selection of food, beverages, tobacco, and nicotine products; health and beauty aids; automotive products; and other non-food items. The company’s stores also provide motor fuel, gasoline, and diesel fuel.
Over the last three years, CASY’s dividend payouts have grown at a 6% CAGR. Its four-year average dividend yield is 0.72%, and its forward annual dividend of $1.52 per share translates to a 0.72% yield. It is expected to pay a quarterly dividend of $0.38 per share on May 15, 2023.
In terms of the trailing-12-month asset turnover ratio, CASY’s 2.71x is 218% higher than the 0.85x industry average. Its 7.71% trailing-12-month Return on Total Assets is 85% higher than the 4.17% industry average. Likewise, its 18.80% trailing-12-month Return on Common Equity is 79.3% higher than the industry average of 10.48%.
For the fiscal third quarter that ended January 31, 2023, CASY’s total revenue increased 9.3% year-over-year to $3.33 billion. The company’s net income increased 56.4% year-over-year to $100.11 million. In addition, its adjusted EBITDA increased 27.9% year-over-year to $222.91 million, while its EPS came in at $2.67, representing a 56.1% increase from the prior-year quarter.
CASY’s EPS and revenue for fiscal 2023 are expected to increase 28.4% and 16.8% year-over-year to $11.69 and $15.13 billion, respectively. It has a creditable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 13.9% to close the last trading session at $209.82.
CASY’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy.
It is ranked #8 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry. CASY has a B grade for Value and Quality. To see the other ratings of CASY for Growth, Momentum, Stability, and Sentiment, click here.
What To Do Next?
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AVGO shares were unchanged in premarket trading Wednesday. Year-to-date, AVGO has gained 13.89%, versus a 4.67% 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.
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