4 stocks with sales growth for strong returns in 2023
After a very disappointing 2022, this year is off to a good start. All three major indexes – the Dow, S&P 500 and Nasdaq Composite – ended the first month of 2023 in green. But to think that macroeconomic concerns have faded is wrong. While recent economic data points to the effectiveness of the Federal Reserve’s ultra-aggressive monetary tightening, we are still not out of the woods. The central bank is expected to keep interest rates high until inflation comes down to a reasonable level.
This has made investors wary of entering the stock market as higher rates will likely lead to a recession/economic downturn in 2023. Therefore, a conventional stock picking strategy is the need of the hour. One such way is to pick stocks that are steadily increasing in sales. In this regard, actions like Deere & Company OF, Rockwell Automation, Inc. ROK, Cboe Global Markets, Inc. CBOE and Alaska Air Group, Inc. ALK are worth considering.
When valuing a business, revenues are often considered more than profits. This is because investors want to ensure that a business has the ability to generate more sales over time to cater to an expanding customer base. Steady or declining sales growth reflects the obstacles faced by the business. Stagnant businesses may generate short-term profits but do not provide sufficient growth to attract new investors.
Without robust revenue growth, improved earnings may not be sustainable. While a company can demonstrate earnings strength by cutting costs, continued bottom line expansion typically requires strong sales growth.
Yet sales growth alone says little about a company’s prospects. Therefore, considering a company’s cash position as well as its turnover can be a practical investment strategy. Substantial liquidity and a stable cash flow give a business more flexibility when it comes to business decisions and potential investments.
Selection of potential winning stocks
To shortlist stocks with impressive sales growth and a high cash balance, we selected Historical 5-year sales growth (%) greater than X-Industry And Cash flow over $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for stock picking. Therefore, we added other factors to arrive at a winning strategy.
P/S ratio lower than X-Industry: This measure determines the value assigned to each dollar of a company’s revenue. The lower the ratio, the better it is to choose a stock since the investor pays less for each unit sold.
% Revision of F1 Sales Estimate Revisions (Four Weeks) Above X-Industry: Better-than-industry estimate revisions are often seen as triggering a rise in the stock price.
Operating margin (average of the last five years) above 5%: Operating margin measures how well every dollar of a company’s sales translates into profit. A high ratio indicates that the company has good cost control and that sales are growing faster than costs – an optimal situation.
Return on equity (ROE) greater than 5%: This measure will ensure that sales growth translates into profits and that the company does not accumulate cash. A high ROE means 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, regardless of the market environment. You can see the full list of today’s Zacks #1 Rank stocks here.
Here are five of the 16 actions that qualified the screening:
Based in Illinois Deere is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery under the iconic John Deere brand. DE is currently the world leader in precision agriculture and remains focused on revolutionizing agriculture through technology.
Deere’s forecasted sales growth rate for 2023 is 13.5%. The stock carries a No. 2 Zacks rank at present.
Rockwell Automation, based in Milwaukee, WI, provides industrial automation and information solutions worldwide. ROK has an extensive network covering more than 100 countries.
Rockwell Automation’s forecasted sales growth rate for fiscal 2023 is 10.9%. The stock currently carries a No. 2 Zacks rank.
Based in Chicago cboe is one of the largest exchange operators by volume in the United States and a world-leading marketplace for ETP trading. CBOE offers trading in a diverse range of products across multiple asset classes and geographies.
Cboe sales are expected to grow 4.4% in 2023. The stock is currently ranked Zacks #2.
Alaska Air, based in Seattle, WA, serves more than 120 cities in North America. ALK’s core operating fleet includes 177 B737 jets and 40 Airbus A320 family jets.
Alaska Air’s projected sales growth for 2023 is 9.8%. The company, at present, carries a No. 2 Zacks rank.
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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 the options mentioned herein. An affiliated investment advisory firm may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.
Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance
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Deere & Company (DE): Free Inventory Analysis Report
Rockwell Automation, Inc. (ROK): Free Inventory Analysis Report
Cboe Global Markets, Inc. (CBOE): Free Stock Analysis Report
Alaska Air Group, Inc. (ALK): Free Inventory Analysis Report
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