The stock market is definitely in bear market territory and is now flirting with new 2022 lows. It is clear that significant risk remains, especially in the short term, due to the combination of an aggressive Fed and a resilient but weakening economy. In these challenging circumstances, investors should prioritize high quality stocks with strong financials and a sustainable and growing income stream. There are countless ways for investors to identify these stocks, but perhaps the simplest way is to target companies that buy back large amounts of shares. Visa (V), Microsoft (MSFT) and Alphabet (GOOGL).
The stock market is definitely in bear market territory and is now flirting with new 2022 lows. It is clear that significant risk remains, especially in the short term, due to the combination of an aggressive Fed and a resilient but weakening economy.
In these challenging circumstances, investors should prioritize high quality stocks with strong financials and a sustainable and growing income stream. There are countless ways for investors to identify these stocks, but perhaps the simplest way is to target companies that buy back large amounts of shares.
Only companies with solid financials and enough income to have excess cash flow can buy in. Reducing the number of shares is also a guaranteed way to increase earnings per share, which is the ultimate driver of a company’s stock price. Therefore, investors should focus on the following 3 companies:
YTD, MSFT shares are down nearly 30%. Still, the company is expected to grow profits by 21% over the next 12 months, which is certainly impressive given the very reasonable future P/E of 20.
MSFT is an exceptional stock and company for several reasons. The most obvious is its dominance across multiple categories, such as PC software, business software, and cloud computing. It is also the best-performing stock in the S&P 500 in the past decade.
But what’s potentially more interesting is that it’s a beast when it comes to returning cash to shareholders through dividends and buybacks. In fact, the company is expected to return more than $40 billion to shareholders by 2022, which is 25% more than last year.
While Microsoft’s dividend is quite modest at just over 1%, it is one of the leaders in terms of dividend growth. In the past 3 years, it has increased its payout by more than 10%. And the payout has increased by 259% over the past decade.
MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which is equivalent to Buy in our proprietary rating system. The stock is rated B for quality due to its leadership in many major markets and a track record of growth and execution. It also carries a B for sentiment, as 22 of the 23 analysts covering the stock have a buy rating with a consensus price target of $363, which represents upside potential of 31%. Click here to see the full POWR ratings for MSFT.
V is another company that is quite dominant in its niche and has some very impressive margins. It is also one of the top growth stocks in the market and is a strong contender to make new all-time highs once the next bull market kicks in.
Currently, the company is repurchasing approximately $3 billion in shares each quarter, which is equivalent to approximately 0.75% of the company. This is a nice tailwind for V’s revenues as approximately 3% of the company’s float retires each year.
Another interesting feature of V is that it has a great business model as it makes money on every trade but takes no credit risk. This has translated into massive earnings growth that has continued over the past year, despite the stock falling nearly 30% from its all-time high. This has resulted in the company having a very attractive forward P/E of 21.
V’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which corresponds to a buy in our own rating system. The POWR ratings are calculated by taking into account 118 different factors, with each factor being optimally weighted. B-rated stocks have an average annual performance of 21.0%, which compares favorably with the S&P 500’s average annual gain of 8.0%.
Like Visa, GOOGL is another “toll road company” given its dominance of search and video. There is tremendous organic growth in these categories that should drive earnings growth over the next decade, especially as advertising continues to shift digitally.
Over the past 12 months, GOOGL’s revenues have increased by a whopping 91% due to the pandemic’s low compositions and an increase in ad spend. Going forward, ad spend could be impacted by an economic slowdown, which is a factor in the recent weakness in Google’s stock prices.
However, the combination of a weak share price and earnings growth has resulted in an extremely attractive valuation with a future P/E of 16.6. This is basically in line with the overall market, despite Google’s juicy margins and long-term growth potential.
In terms of share buybacks, Google has $125 billion in cash, and many analysts expect a massive $100 billion buyback, equivalent to nearly 7% of its total market capitalization.
What makes them”MUST OWN“?
All 9 picks have strong fundamentals and experience tremendous momentum. They also contain a winning mix of growth and value attributes that are a catalyst for serious outperformance.
More importantly, they have all recently earned a Buy rating from our coveted POWR Ratings system, with A-rated stocks rising +31.10% per year.
Click below now to check out these top-performing stocks with exciting growth prospects:
V shares closed at $177.65 on Friday, down $2.41 (-1.34%). Year-to-date, V is down -17.59%, versus a -23.93% rise in the benchmark S&P 500 index over the same period.
About the author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR growth and POWR Shares Below $10 newsletters. Read more about Jaimini’s background, along with links to his most recent articles.