3 Stocks With Sales Growth to Buy Amid Persistent Inflation
Though the effectiveness of the Federal Reserve’s ultra-aggressive monetary tightening is being witnessed, inflation is turning out to be “sticky.” Hence, the central bank is likely to raise interest rates in the near term.
This has made investors wary about entering the stock market, as higher rates will likely lead to a recession/economic slowdown in 2023. Hence, a conventional stock-picking strategy is the need of the hour. One such way is selecting stocks with steady sales growth. In this regard, stocks like Everest Re Group, Ltd. RE, Thermo Fisher Scientific Inc. TMO and Sony Group Corporation SONY are worth considering.
While assessing any company, revenues are often more scrutinized than earnings. This is because investors want to make sure that a business has the capability of generating more sales over time to cater to an increasing customer base. Steady or declining sales growth reflects obstacles at the company. Stagnant companies may generate profit in the near term but do not ensure enough growth to attract new investors.
Without robust revenue growth, bottom-line improvement may not be sustainable. While a company can show earnings strength by lowering costs, continued bottom-line expansion usually requires strong sales growth.
Nonetheless, sales growth alone doesn’t show much about a company’s prospects. So, taking into account a company’s cash position along with its sales number can be a practical investment strategy. Substantial cash in hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments.
Selecting the Potential Winning Stocks
To shortlist stocks with impressive sales growth and a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow of more than $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for selecting stocks. Hence, we have added other factors to arrive at a winning strategy.
P/S Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.
% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company's sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs — an optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means that the company is spending wisely and is in all likelihood profitable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform, irrespective of the market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are three of the 16 stocks that qualified the screening:
Bermuda-based Everest Re writes property and casualty, reinsurance and insurance in the United States, Bermuda and international markets. RE also offers other innovative products like excess and surplus lines of insurance.
Everest Re’s expected sales growth rate for 2023 is 13.1%. The stock sports a Zacks Rank #1 at present.
Headquartered in Waltham, MA, Thermo Fisher is a scientific instrument maker and a world leader in serving science. TMO operates through four segments – Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics and Laboratory Products and Biopharma Services.
Thermo Fisher’s expected sales growth rate for 2023 is 1%. The stock currently carries a Zacks Rank #2.
Headquartered in Tokyo, Japan, Sony Group designs, manufactures and sells several consumer and industrial electronic equipment. SONY is also active in the production, acquisition and distribution of motion pictures as well as television programming, along with the operation of television and digital networks.
Sony Group’s sales are expected to rise 8.3% in fiscal 2024. The stock sports a Zacks Rank #1 at present.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance
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Thermo Fisher Scientific Inc. (TMO) : Free Stock Analysis Report
Everest Re Group, Ltd. (RE) : Free Stock Analysis Report
Sony Corporation (SONY) : Free Stock Analysis Report
