Four stocks worth adding to your watchlist in Q2

 

Published: Mon 27 Mar 2023, 2:14 PM

The past week, global markets focused on interest rate hikes to tame inflation despite concerns over banking sector crisis.

By Vijay Valecha

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The FOMC, as was highly anticipated, increased its target for the federal funds rate by 25 basis points to the 4.75-5 per cent range. This marks the highest range since September 2007, when rates peaked on the eve of the financial crisis.


Meanwhile, UK CPI unexpectedly rose to 10.4 per cent in February from January's 10.1 per cent. The annual CPI rate was estimated to drop to 9.9 per cent. This compelled the Bank of England BoE to hike the key interest rate by 25 bps.

These developments have triggered massive volatility across the financial markets leaving no asset class unmoved, keeping investors on their toes.


Markets taking shape as we welcome Q2

Now, as we move into the second quarter of 2023, it makes sense to revisit the portfolio and analyse potential opportunities and risks amid ongoing market volatility.

The first quarter has witnessed the AI renaissance across stock market with AI-focused stocks like NVIDIA being the cynosure of all eyes. Talking about commodities, the dominating themes are drop in crude oil prices and surge in gold prices.

Coming to cryptocurrencies, the unexpected surge in Bitcoin prices despite banking fallouts remains an interesting point to think about.

Considering the backdrop, we discuss four stocks that could be a compelling watch for Q2:

Microsoft (MSFT)

Share Price*: $280.57

YTD Performance*: +17.1 per cent

In the fiscal 2023 second quarter, Microsoft (MSFT) reported revenue of $52.7 billion, an increase of two per cent from the previous year, driven by Intelligent Cloud business, which includes its Azure cloud computing platform.

Microsoft's Intelligent Cloud quarterly sales increased by 24 per cent yearly on a constant currency basis to $21.5 billion.

The tech behemoth's multibillion dollar investment in OpenAI, the company behind the viral ChatGPT service, is a testament to its focus on 'Democratising access to AI'.

Investment in OpenAI is being considered a prudent move and possibly a 'game-changer' over the long term as Microsoft could integrate advanced AI capabilities into its business intelligence software.

The Coca-Cola Company (KO)

Share Price*: $60.90

YTD Performance*: -3.3 per cent

The Coca-Cola Company reported net revenues of $43.0 billion in 2022, up 11 per cent on a year-over-year basis, and organic revenues (non-GAAP) grew 16 per cent. This performance was driven by 11 per cent growth in price/mix and five per cent growth in concentrate sales.

Moreover, the company gained value share in total ready-to-drink beverages, which included share gains in both at-home and away-from-home channels.

The Coca-Cola Company has increased dividends in each of the last 60 years and is one of the market's few dividend kings. During 2022, the company paid dividends totalling $7.6 billion.

As a result, KO is at the top of many investors' screens who look for income growth at a respectable rate. The share has a dividend yield of roughly 3.11 per cent even in a turbulent market.

Coca-Cola’s profitable business model, consistent sales growth pricing and dividend payment make it a sensible option for investors seeking stable asset allocation with conservative outlook.

Johnson & Johnson (JNJ)

Share Price: $152.65

YTD Performance: -14.3 per cent

Johnson & Johnson has such an impressive track record of maintaining and raising its dividend that 2022 marked its 60th consecutive year of doing so.

JNJ stock yields a dividend of 2.9 per cent, and in the last five years alone its dividend has jumped by more than 25 per cent.

The sales of medical technology and pharmaceuticals have been driving steady growth for Johnson & Johnson. The company believes its pharmaceutical business is on track to be worth $60 billion by 2025, while its medical device segment generated $27 billion of sales in 2022 alone.

Further, the company’s strength across multiple segments of the fast-growing, largely non-cyclical healthcare industry makes it a worthy nominee for a long-term investor's portfolio.

JNJ is trading near 52-week lows, making it attractive from a valuation perspective.

ASML Holding N.V. (ASML)

Share Price: €598.7

YTD Performance: +15.8 per cent

For an investor looking to diversify their portfolio with semiconductor names, ASML deserves a mention. ASML is the largest producer of photolithography systems, which are used to etch circuit designs onto silicon wafers. It is also the sole manufacturer of high-end EUV (extreme ultraviolet) lithography systems, which cost roughly $200 million each and require many planes to transport.

The world's most cutting-edge semiconductor foundries, including TSMC, Samsung, and Intel, produce their smallest and densest chips using ASML's EUV technology. A significant portion of ASML's pricing strength comes from its market dominance in photolithography. Because of this, despite earlier cyclical downturns, the company's gross margins have constantly increased.

Despite a challenging 2022, ASML reported a solid result. At 6.43 billion euros, Q4 revenue increased by 29 per cent from the previous quarter. Revenue for the whole year 2022 increased by 14 per cent from 2021 to 21.2 billion euros.

These four companies must be in an investor’s watchlist in the second quarter. However, it must be noted that investing and trading carries significant risks. Before deciding to trade on these products, you should consider your investment objectives, risk tolerance and your level of experience. Accordingly, you should ensure that you understand the risks involved and seek independent advice from professionals, if necessary.

*Prices and performance as of markets close on Friday, March 24, 2023

Vijay Valecha is the chief investment officer at Century Financial.


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