The Fed's indication that rates may stay higher for longer and November's declining retail sales have sent jitters in the economy. Amid mounting recessionary fears, fundamentally strong stocks, Adobe (ADBE), DocuSign (DOCU), and Buckle (BKE), which have recently been upgraded in our proprietary system, might be ideal additions to your watchlist. Keep reading.
As indicated earlier, the Federal Reserve slowed its historic pace of rate hikes, announcing a 50-bps rate hike this month, breaking a string of four straight 75-bps hikes. However, it is projected to raise the borrowing rate to 5.1% in 2023, indicating continued rate hikes and sending stocks to tumble.
Moreover, amid the heightened recessionary fear, retail sales dropped 0.6% in November, worse than the Dow Jones estimate of a 0.3% decline, reflecting that consumers are failing to keep up with even a muted level of inflation for the month.
Furthermore, economists at Moody's Analytics predict America's economy will grow at an annualized rate of just 1.9% in the fourth quarter, down from its previous estimate of 2.7%.
Given this uncertainty, fundamentally strong stocks Adobe Inc. (ADBE), DocuSign, Inc. (DOCU), and The Buckle, Inc. (BKE) might be ideal additions to your watchlist. Moreover, these stocks have recently been upgraded in our POWR Ratings system.
Adobe Inc. (ADBE)
ADBE functions as a diversified software company internationally. It operates through three segments: Digital Media, Digital Experience, and Publishing and Advertising.
On October 24, ADBE announced that it is working with U.S. Bank (USB) to deliver enhanced online and in-branch customer experiences that are personalized to individuals' needs and interests. With Adobe Experience Platform, U.S. Bank will have a full suite of tools to safely activate data for large-scale personalization and real-time experiences, enhanced governance and controls, and AI for automation.
On October 18, ADBE announced the expansion of collaboration tools within Adobe Creative Cloud and Document Cloud, enabling new workflows that will empower creators to meet ever-growing content demands across multiple platforms. These innovations will enable seamless collaboration throughout the creative process and might drive up the company's revenues.
During the fiscal third quarter ended December 2, ADBE's total revenue increased 10.1% year-over-year to $4.53 billion. Its non-GAAP operating income rose 8.9% year-over-year to $2.02 billion. The company's non-GAAP net income and net income per share came in at $1.68 billion and $3.60, rising 9% and 12.5% from the prior-year period, respectively.
Streets expect ADBE's revenue for the fiscal first quarter ending February 2023 to come in at $4.62 billion, representing an increase of 8.4% from the same quarter last year. The company's EPS will likely grow 9.2% year-over-year to $3.68 for the first quarter. The company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is admirable.
ADBE has gained 13% over the past three months to close its last trading session at 338.54.
ADBE was upgraded on December 12, 2022, to an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ADBE has an A grade for Quality and a B grade for Sentiment. It is ranked #27 out of 137 stocks in the Software – Application industry.
Click here to see additional POWR Ratings for Growth, Value, Momentum, and Stability for ADBE.
DocuSign, Inc. (DOCU)
DOCU is a cloud-based software provider in the U.S. and internationally. The company offers e-signature solutions, CLM, Gen for Salesforce, Negotiate for Salesforce, analyzer, CLM+, and guided forums for various consumer applications. It serves enterprise, commercial and small businesses and sells its products through direct, partner-assisted, and web-based sales.
DOCU's total revenue increased 18.3% year-over-year to $645.46 million in its fiscal third quarter ended October 31, 2022. Its gross profit increased 20.1% year-over-year to $515.92 million. The company's on-GAAP net income per share was $0.57 for the quarter.
Analysts expect DOCU's revenue for its fiscal fourth quarter ending January 2023, to come in at $639.83 million, representing a 10.2% rise year-over-year. Its EPS will likely improve by 8.4% year-over-year in the same quarter to $0.52. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 22.3% over the past month to close its last trading session at $56.27.
The stock was upgraded on December 16, 2022, to an overall rating of B, which translates to Buy in our proprietary POWR Ratings system.
DOCU is also rated an A in Growth and a B in Quality. Within the Software - SAAS industry, it is ranked #6 of 26 stocks.
Click here to see additional POWR Ratings for Value, Momentum Sentiment, and Stability for DOCU.
The Buckle, Inc. (BKE)
BKE operates as a casual apparel, footwear, and accessories retailer for young men and women. It markets a selection of brand-name casual apparel and private-label merchandise primarily comprising BKE, Buckle Black, Salvage, and Red by BKE, among others.
On December 5, 2022, BKE's Board of Directors authorized a $2.65 per share special cash dividend and a $0.35 per share quarterly dividend payable together on January 27, 2023. Over the past three years, its dividends have grown at a CAGR of 11.9%. Moreover, the company has a 4-year average dividend yield of 13.85%
For the fiscal third quarter ended October 29, 2022, BKE's sales, net of returns, and allowances increased 4% year-over-year to $332.34 million. Its gross profit increased 2.7% from the prior-year quarter to $165.40 million. In addition, its net income amounted to $61.39 million for the quarter.
BKE's revenue estimate of $316.50 million for the fiscal second quarter ending July 2023 indicates a 4.8% increase year-over-year. Its EPS is expected to increase 4% year-over-year to $1.05 in the same quarter. The stock has surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 51.6% to close the last trading session at $44.34.
On December 16, 2022, the stock was upgraded to an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality. BKE is ranked #13 out of 66 stocks in the Fashion & Luxury industry.
In addition to the grade above, we have also given BKE grades for Growth, Value, Momentum, Sentiment, and Stability. Get all BKE ratings here.
ADBE shares rose $1.01 (+0.30%) in premarket trading Monday. Year-to-date, ADBE has declined -40.30%, versus a -18.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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