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3 Quality Stocks to Secure This Week

With the uncertain economic environment and the possibility of a recession on the horizon, investing in quality stocks such as ServiceNow (NOW), Nikon Corp. (NINOY), and North American Construction Group (NOA) could help survive a market downturn. Read more…

With raging inflation and fears of a downturn shaking investors’ confidence, the near-term market outlook remains cloudy. Therefore, let’s take a look at some of the quality stocks ServiceNow, Inc. (NOW), Nikon Corporation (NINOY), and North American Construction Group Ltd. (NOA) to secure this week that could help with stable returns during such market turmoil.

The Commerce Department recently reported that the core Personal Consumption Expenditures (PCE) price index increased 0.4% in April. The data indicates that inflationary pressures in the economy remain high, and a recession is lurking just over the horizon.

According to a survey, consumer confidence slipped in May to a six-month low of 102.3, as Americans remained ‘gloomy’ about the economy. Despite inflation being on a downward trajectory, it remains much higher than the 2% target routinely outlined by the Federal Reserve.

This, in turn, has kept Americans wary of rising prices. According to a monthly Consumer Sentiment study, 78% of people think ‘inflation will increase’ in the next few months, while 68% predict that the U.S. economy will worsen. Amid such sticky inflation, BlackRock, Inc. (BLK) Chief Executive Laurence Fink expects that the Federal Reserve might be required to hike interest rates further to contain price pressures.

Alongside this warning signal, despite the upturn in economic data earlier this year, leading forecaster at the Economic Cycle Research Institute (ECRI) warns that a ‘hard landing’ for the U.S. economy is still in the cards. Moreover, U.S. Gross Domestic Product (GDP) rose at a 1.1% annualized pace in the first quarter, lower than economists’ expected growth of 2%.

Nonetheless, given the strong fundamentals and high profitability of NOW, NINOY, and NOA, these stocks look well-equipped to brave most market challenges. Hence, they could be ideal buys for now.

ServiceNow, Inc. (NOW)

NOW is engaged in providing enterprise cloud computing solutions that define, structure, consolidate, manage, and automate services for enterprises worldwide. It operates the Now platform for workflow automation, artificial intelligence, machine learning, process mining, performance analytics, electronic service catalogs, portals, etc.

On May 17, NOW partnered with NVIDIA Corporation (NVDA) to create advanced generative AI capabilities that are tailored for enterprise use and can revolutionize business processes by enabling faster and more intelligent workflow automation.

By leveraging NVDA's software, services, and accelerated infrastructure, NOW is actively working on developing customized large language models. Through this collaboration, the company aims to enhance its already extensive AI functionality by incorporating generative AI across various areas within enterprises.

In the same month, NOW introduced new generative AI capabilities for its Now Platform to enhance workflow automation by delivering faster and more intelligent automation processes.

The two new solutions, ServiceNow Generative AI Controller and Now Assist for Search, augment the company's existing AI functionality by incorporating generative AI capabilities directly into enterprise applications. These innovative solutions enable companies to achieve cost reductions, improved productivity, enhanced user experiences, and faster time-to-value.

Furthermore, NOW and Microsoft Corporation (MSFT) expanded their strategic partnership, establishing a connection between the Now Platform and Azure OpenAI Service. This integration ensures that customers can leverage the potential of generative AI in a secure and trusted manner.

In terms of trailing-12-month ROCE and ROTA, NOW’s 8.34% and 2.94% are significantly higher than the industry averages of 0.50% and 0.08%, respectively. Likewise, its trailing-12-month levered FCF margin of 32.94% is 359.28% higher than the industry average of 7.17%.

NOW’s total revenues increased 21.7% year-over-year to $2.09 billion in the first quarter (ended March 31, 2023), while its non-GAAP gross profit rose 22% from the year-ago value to $1.74 billion. Its non-GAAP income from operations increased 26.3% from the prior-year quarter to $552 million. 

The company’s non-GAAP net income amounted to $483 million and $2.37 per share, representing increases of 37.2% and 37% year-over-year, respectively.

Analysts expect NOW’s EPS and revenue for the current quarter (ending June 30, 2023) to increase 25.9% and 21.6% year-over-year to be $2.04 and $2.13 billion, respectively. The company has an impressive earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.

NOW’s shares have gained 40.3­% year-to-date to close the last trading session at $544.78.

NOW’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Growth and a B for Sentiment and Quality. Among the 50 stocks in the Software – Business industry, it is ranked #13. Click here to see the other ratings of NOW for Value, Momentum, and Stability.

Nikon Corporation (NINOY)

Headquartered in Tokyo, Japan, NINOY manufactures and sells optical instruments through the Imaging Product; Precision Equipment; Healthcare; Components; and Industrial Metrology and Others segments.

On May 23, NINOY introduced the ECLIPSE Ni-L upright microscope, which incorporates a specially balanced LED illumination system designed to mimic natural light properties. This innovation enables the microscope to display the original colors of specimens with greater accuracy, making it particularly valuable for observing pathological specimens and cells.

Inbuilt with comprehensive and functional features, the new device will likely be highly demanded by healthcare and pathology business units.

On April 27, NINOY announced that its subsidiary Nikon Americas Inc. (NAI) had entered into an equity purchase agreement with Avonix Imaging, LLC, a company specializing in the manufacturing, sales, and services of X-ray and CT Systems. This acquisition would enable both companies to advance the development of new products and enhance their businesses.

NINOY’s trailing-12-month net income margin of 7.16% is 66.7% higher than the 4.29% industry average. Also, its trailing-12-month EBIT margin of 9.75% is 32.5% higher than the industry average of 7.36%.

In the fiscal year that ended March 31, 2023, NINOY’s revenue increased 16.4% year-over-year to ¥628.11 billion ($4.49 billion), while its gross profit grew 22.5% from the year-ago value to ¥289.17 billion ($2.07 billion).

The company’s profit for the year and EPS amounted to ¥43.28 billion ($309.95 million) and ¥124.77, representing increases of 2.4% and 7.9% from the prior-year period, respectively. Also, its operating profit stood at ¥54.91 billion ($393.19 million), up 9.9% year-over-year.

The consensus revenue estimate of $4.42 billion for the fiscal year (ending March 2024) represents a 44.5% improvement year-over-year. The consensus EPS estimate for the current year is expected to be $0.85. Also, its EPS is expected to increase by 13.5% per annum over the next five years.

The stock has gained 24.6% year-to-date to close the last trading session at $11.02.

NINOY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system.

It also has a B grade for Value, Stability, and Quality. In the 91-stock Semiconductor & Wireless Chip industry, it is ranked #8. To see additional POWR Ratings of NINOY for Growth, Momentum, and Sentiment, click here.

North American Construction Group Ltd. (NOA)

Headquartered in Acheson, Canada, NOA engages in providing equipment maintenance and a range of mining and heavy construction services to customers in the resource development and industrial construction sectors. The company's operating divisions include Heavy Construction and Mining; and Equipment Maintenance Services.

On April 25, the company’s Board of Directors declared a quarterly dividend of $0.10 per common share, payable to its common shareholders on July 7, 2023. NOA’s four-year average dividend yield is 1.26%, and its forward annual dividend translates to a 1.60% yield. Its dividends have grown at 30.8% and 33.6% CAGRs over the past three and five years, respectively.

In terms of trailing-12-month NOA’s ROCE of 24.56% is 2.5% higher than the 23.95% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.91x compares to the industry average of 0.65x.

NOA’s revenues increased 37.3% year-over-year to $242.61 million in the first quarter (ended March 31, 2023), while its gross profit improved 86.4% from the year-ago value to $40.92 million.

The company’s adjusted net earnings amounted to $25.28 million and $0.96, representing increases of 73.1% and 88.2% from the prior-year quarter, respectively. Also, its adjusted EBITDA stood at $84.62 million, up 46.6% year-over-year.

Analysts expect NOA’s EPS for the second quarter (ending June 30, 2023) to increase 131% year-over-year to $0.31. Its revenue estimate of $131.90 million for the ongoing quarter is expected to increase marginally year-over-year. Moreover, it surpassed the EPS estimates in three of the trailing four quarters.

Over the past nine months, the stock has gained 58.7% to close the last trading session at $18.25.

It’s no surprise that NOA has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth, Momentum, Sentiment, and Quality. Out of 45 stocks in the Energy - Services industry, it is ranked #3.

In addition to the POWR Ratings we’ve stated above, we also have NOA’s ratings for Value and Stability. Get all NOA ratings here.

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NOW shares were trading at $545.86 per share on Thursday afternoon, up $1.08 (+0.20%). Year-to-date, NOW has gained 40.59%, versus a 10.70% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.


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