The stock market is decisively in bear market territory and is now flirting with new, 2022 lows. Clearly, there remains a considerable amount of risk especially in the near-term due to the combination of a hawkish Fed and a resilient but weakening economy.

Amid these challenging circumstances, investors should prioritize high-quality stocks with strong financials and a durable and growing earnings stream. There are countless ways for investors to identify these stocks, but maybe the most simple is to target companies that are buying back large amounts of stock.

Only companies with sound financials and enough earnings to have excess cash flow are able to engage in buybacks. Reducing share count is also a guaranteed way to increase EPS which is the ultimate driver of a company’s stock price. Therefore, investors should target the following 3 companies: 

Microsoft (MSFT)

YTD, MSFT shares are down nearly 30%. Yet, the company is expected to grow earnings over the next 12 months by 21% which is certainly impressive given its very reasonable forward P/E of 20. 

MSFT is an exceptional stock and company for several reasons. The most obvious isits dominance in multiple categories such as PC software, enterprise software, and cloud computing. It’s also the best-performing stock in the S&P 500 over the last decade.

But, what’s even more potentially interesting is that it’s a beast in terms of returning cash to shareholders through dividends and buybacks. In fact, the company is projected to return over $40 billion to shareholders in 2022 which is 25% more than last year. 

Although, Microsoft’s dividend is quite modest at just over 1%, it is one of the leaders in terms of dividend growth. Over the last 3 years, it’s increased its payout by more than 10%. And, the payout has increased by 259% over the last decade.  

MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The stock has a B for Quality due to its leadership in many large markets and a track record of growth and execution. It also has a B for Sentiment as 22 out of 23 analysts covering the stock have a Buy rating with a consensus price target of $363, implying a 31% upside. Click here to see the complete POWR ratings for MSFT.

Visa (V)

V is another company that is pretty dominant in its niche and has some very impressive margins. It’s also one of the premier growth stocks in the market and is a strong candidate to make new, all-time highs, once the next bull market commences. 

Currently, the company is buying back about $3 billion of stock every quarter which equates to about 0.75% of the company. This is a nice tailwind for V’s earnings as about 3% of the company’s float is retired every year. 

Another interesting characteristic for V is that it has a great business model as it makes money on every transaction but doesn’t take on any credit risk. This has translated into tremendous earnings growth which has continued over the past year, despite the stock being down nearly 30% from its all-time highs. 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 equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. B-rated stocks have an average annual performance of 21.0% which compares favorably to the S&P 500’s average annual gain of 8.0%. 

Alphabet (GOOGL)

Similar to Visa, GOOGL is another ‘toll-road’ business given its dominance of Search and video. There is tremendous organic growth in these categories that should fuel earnings growth over the next decade especially as advertising continues to shift digitally.

Over the last 12 months, GOOGL’s earnings are up by a staggering 91% due to low comps from the pandemic and an increase in ad spending. Going forward, ad spending could be impacted by an economic slowdown which is one factor in Google’s recent stock price weakness.

However, the combination of a weak stock price and earnings growth has resulted in an extremely attractive valuation with a forward 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 stock buybacks, Google has $125 billion in cash, and many analysts are anticipating a massive buyback of $100 billion which would be equivalent to nearly 7% of its total market cap. 

V shares closed at $177.65 on Friday, down $-2.41 (-1.34%). Year-to-date, V has declined -17.59%, versus a -23.93% rise in the benchmark S&P 500 index during the same period.

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 Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.

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