Of the three major indices, the Nasdaq Composite has been the best-performing index so far this year. The index has reversed its underperformance over the past year, gaining 8.3%.
While 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 portfolios given their strong fundamentals and solid growth prospects.
Before we examine why investors should buy these two Nasdaq stocks, let’s discuss why the stock market is likely to remain turbulent.
Earlier this week, Fed Chair Jerome Powell warned that if inflation data continues to be strong, interest rates are likely to rise “more than previously expected by central bank policymakers.” Markets expect the final rate to be close to 5.75%.
However, Treasury Secretary Janet Yellen believes the economy can still achieve a “soft landing” and lower inflation without a recession. Additionally, stocks could have a surprisingly strong first half, according to Morgan Stanley’s 2023 outlook.
ADBE and ORLY appear poised to deliver stable 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 trailing 12-month EBIT margin, ADBE is 34.64%, up 489% from the industry average of 5.88%. Likewise, the 32.97% return on the common equity trailing 12 months is well above the industry average of 4.75%.
On February 23, 2023, ADBE announced a collaboration with Qualcomm Incorporated (QCOM) to advance its digital strategy and that of its affiliates.
Anil Chakravarthy, President of ADBE’s Digital Experience Business, said: “By acquiring Adobe’s enterprise applications, Qualcomm has an end-to-end solution that will enhance the omnichannel experience for business customers and improve marketing performance. The partnership will help Qualcomm take its own digital transformation to the next level and open new avenues 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. Non-GAAP operating income increased 8.9% year over year to $2.02 billion. In addition, non-GAAP net income increased 9% year over year to $1.68 billion, while non-GAAP EPS was $3.60, a 12.5% increase over the year-ago quarter is equivalent to.
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 record, beating consensus estimates for earnings per share in each of the last four quarters. Over the past three months, the stock is up 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, which equates to Buy in our proprietary rating system. The POWR Ratings evaluate stocks based on 118 different factors, each with its own weighting.
Within the B-rated software applications industry, it ranks 22nd out of 136 stocks. The company has an A grade for Quality and a B grade for Sentiment.
We also assigned ADBE scores for Growth, Value, Momentum and Stability. Get all ADBE reviews here.
O’Reilly Automotive, Inc. (ORLY)
ORLY operates as a retailer and supplier of spare parts, tools, consumables, equipment and accessories for the automotive aftermarket. The company offers new and remanufactured automotive hard parts and maintenance items and accessories. It also offers body paint and related materials, automotive tools and service equipment for professional service providers.
In terms of trailing 12-month EBIT margin, ORLY is 20.56%, 168.5% above the industry average of 7.66%. Likewise, the return on assets after twelve months of 32.81% is 419.1% above the industry average of 6.32%.
For the fourth fiscal quarter ended December 31, 2022, ORLY’s revenue 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. Additionally, earnings per share were $8.37, up 9.6% from the same period last year.
ORLY’s EPS and revenue for the quarter ended March 31, 2023 are projected to increase 11.6% and 8.4% year-on-year, to $8.00 and $3.57 billion, respectively. The stock is up 32.8% over the past nine months to close the last trading session at $822.31.
It’s no surprise that ORLY has an overall rating of B, which equates to a buy in our proprietary rating system. It is ranked 21st out of 60 stocks in the A-rated auto parts industry. It has an A grade for quality and a B grade for growth and mood.
Click here to view ORLY’s additional scores for Value, Momentum and Stability.
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ADBE shares traded at $333.72 per share on Friday afternoon, down $4.65 (-1.37%). Year-to-date, ADBE is down -0.83% versus a 1.99% gain in the benchmark S&P 500 index over 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 help investors make informed investment decisions. More…
