Out of the three major indexes, the Nasdaq Composite has been the best-performing index so far this year. The index has turned around its underperformance over the past year by gaining 8.3%.
Although the market is expected to remain under pressure this year, I think investors could look to add Adobe Inc. (ADBE) and O’Reilly Automotive Inc. (ORLY) to their portfolio, given their strong fundamentals and solid growth prospects.
Before exploring why investors should buy these two Nasdaq stocks, let’s discuss why the stock market is expected to remain turbulent.
Earlier this week, Fed Chairman Jerome Powell cautioned that if inflation data remains strong, the rates are expected to climb “higher than previously anticipated” by the central bank policymakers. The markets expect the terminal rate to hit close to 5.75%.
However, Treasury Secretary Janet Yellen believes the economy can still achieve a “soft landing” and achieve lower inflation without a recession. In addition, stocks could have a surprisingly strong first half of the year, as per Morgan Stanley’s outlook for 2023.
ADBE and ORLY look poised to deliver steady returns despite the macro uncertainties.
Adobe Inc. (ADBE)
ADBE operates as a diversified software company worldwide. It operates through three segments: Digital Media, Digital Experience, and Publishing and Advertising.
In terms of the trailing-12-month EBIT margin, ADBE’s 34.64% is 489% higher than the 5.88% industry average. Likewise, its 32.97% trailing-12-month Return on Common Equity is significantly higher than the industry average of 4.75%.
On February 23, 2023, ADBE announced a collaboration with Qualcomm Incorporated (QCOM) to help fuel its digital strategy and that of its affiliated companies.
ADBE’s president of digital experience business, Anil Chakravarthy, said, “By adopting Adobe’s enterprise applications, Qualcomm has an end-to-end solution that will enhance omnichannel experiences for business customers and improve marketing performance. The partnership will help Qualcomm take its own digital transformation to the next level and deliver new ways to showcase the transformative technologies it is delivering to the world.”
ADBE’s total revenue for the fourth quarter ended December 2, 2022, increased 10.1% year-over-year to $4.53 billion. Its non-GAAP operating income increased 8.9% year-over-year to $2.02 billion. Additionally, its non-GAAP net income increased 9% year-over-year to $1.68 billion, while its non-GAAP EPS came in at $3.60, representing an increase of 12.5% from the prior-year quarter.
Analysts expect ADBE’s EPS and revenue for the quarter ended February 28, 2023, to increase 9.1% and 8.5% year-over-year to $3.68 and $4.62 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 2.3% to close the last trading session at $338.37.
ADBE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Software – Application industry, it is ranked #22 out of 136 stocks. The company has an A grade for Quality and a B for Sentiment.
We have also given ADBE grades for Growth, Value, Momentum, and Stability. Get all ADBE ratings here.
O’Reilly Automotive, Inc. (ORLY)
ORLY operates as a retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories. The company provides new and remanufactured automotive hard parts and maintenance items, and accessories. It also offers auto body paint and related materials, automotive tools, and professional service provider service equipment.
In terms of the trailing-12-month EBIT margin, ORLY’s 20.56% is 168.5% higher than the 7.66% industry average. Likewise, its 32.81% trailing-12-month Return on Total Capital is 419.1% higher than the industry average of 6.32%.
For the fiscal fourth quarter ended December 31, 2022, ORLY’s sales increased 10.7% year-over-year to $3.64 billion. The company’s net income increased 1.8% year-over-year to $528.57 million. Moreover, its EPS came in at $8.37, representing a 9.6% increase from the year-ago period.
ORLY’s EPS and revenue for the quarter ending March 31, 2023, are expected to increase 11.6% and 8.4% year-over-year to $8.00 and $3.57 billion, respectively. The stock has gained 32.8% over the past nine months to close the last trading session at $822.31.
It is no surprise that ORLY has an overall rating of B, which translates to a Buy in our proprietary rating system. It is ranked #21 out of 60 stocks in the A-rated Auto Parts industry. It has an A grade for Quality and a B for Growth and Sentiment.
To see the additional ratings of ORLY for Value, Momentum, and Stability, click here.
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ADBE shares were trading at $333.72 per share on Friday afternoon, down $4.65 (-1.37%). Year-to-date, ADBE has declined -0.83%, versus a 1.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika’s passion for writing and interest in financial markets led her to pursue a career in investment research.With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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