Coupled with warnings around the debt ceiling growing louder, the Fed’s persistent efforts to curb the stubbornly high inflation and the banking system jitters have aggravated concerns of an economic slump. The resultant market volatilities are anticipated to linger for a while.
Despite such an uncertain economic backdrop, investors could consider buying quality growth stocks, Boston Scientific Corporation (BSX), Cardinal Health, Inc. (CAH), Cidara Therapeutics, Inc. (CDTX), and Geospace Technologies Corporation (GEOS), to garner significant returns.
The year started with a state of euphoria, witnessing a stock market rally amid optimism of a halt in the Fed’s rate hike. However, the hopes were dashed owing to the banking sector chaos, stubbornly high inflation, and the U.S. debt default crisis, leading to market volatility. Moreover, experts anticipate that a recession could materialize later this year.
Conference Board’s Leading Economic Index (LEI) for the United States declined for the thirteenth consecutive month in April, signaling a worsening economic outlook. A contraction of economic activity could start in the second quarter of the year, leading to a mild recession by mid-2023.
However, Fed Chair Jerome Powell has signaled a rate hike pause when it meets in June instead of bumping them up by another 25 basis points. With uncertainties looming, investors could choose growth stocks to secure profits from the rapid price appreciation they offer.
Despite volatility scares, growth stocks are primarily associated with strong earnings growth, novel technologies that set them apart, and robust expansionary prospects. Hence, investing in them could translate into high returns.
Furthermore, over the past three months, SPDR Portfolio S&P 500 Growth ETF (SPYG) has gained 6.5%, outperforming the S&P 500, which gained 4.5%, substantiating investors’ confidence in growth stocks.
Given this backdrop, stocks BSX, CAH, CDTX, and GEOS, exhibiting notable fundamental strength, could soar in the foreseeable future and might be wise portfolio additions now.
Boston Scientific Corporation (BSX)
BSX develops, manufactures, and markets medical devices for use in various interventional medical specialties worldwide. The company operates segments: MedSurg and Cardiovascular.
In early February, BSX received U.S. Food and Drug Administration (FDA) clearance and launched LithoVue™ Elite Single-Use Digital Flexible Ureteroscope System, the first ureteroscope system with a built-in sensor that enables urologists to monitor intrarenal pressure in real time during ureteroscopy procedures, in the United States and Japan. This should bode well for the company.
BSX’s chairman and CEO, Mike Mahoney, said, "With a robust pipeline in 2023 and beyond, I'm optimistic about our ability to continue to deliver differentiated financial performance and the opportunity to reach more patients with life-changing therapies."
BSX’s trailing-12-month EBITDA margin of 25.15% is significantly higher than the industry average of 1.92%. Its trailing-12-month ROCE, ROTC, and ROTA of 4.89%, 4.95%, and 2.74% compare to the industry averages of negative 42.96%, 23.20%, and 33.39%, respectively.
BSX’s revenue has grown at 6.6% and 7.1% CAGRs over the past three and five years, respectively. Moreover, its EBIT and EBITDA have grown at 9.8% and 7.1% CAGRs over the past three years, respectively.
For the fiscal first quarter that ended March 31, 2023, BSX’s net sales and adjusted operating income increased 12% and 10.8% year-over-year to $3.39 billion and $865 million, respectively.
Moreover, adjusted net income attributable to BSX common stockholders and adjusted EPS in the quarter were $673 million and $0.47, up 19.8% and 20.5% from the year-ago quarter, respectively.
The company estimates net sales growth for the full year 2023 to be approximately 8.5% to 10.5% year-over-year on a reported basis. Also, its adjusted EPS (excluding certain charges) is estimated to be between $1.90 and $1.96.
For the fiscal second quarter ending June 2023, analysts expect BSX’s revenue and EPS to be $3.50 billion and $0.49, representing a 7.9% and 11.4% year-over-year rise, respectively. It surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past year, the stock has gained 28.3% in price to close its last trading session at $51.50. It has gained 17.3% over the past six months. The stock is trading above its 50-day and 200-day moving averages of $51.10 and $45.62, respectively, indicating an uptrend.
BSX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an A grade for Growth and a B for Stability and Sentiment. BSX is ranked #34 in the 137-stock Medical – Devices & Equipment industry.
Click here to see BSX’s ratings for Value, Momentum, and Quality.
Cardinal Health, Inc. (CAH)
CAH is a provider of integrated healthcare services and solutions. It offers customized solutions for healthcare organizations like hospitals, pharmacies, clinical laboratories, and patients receiving care at home. The company operates through two segments, Pharmaceutical and Medical.
On May 11, CAH’s board of directors approved a quarterly dividend of $0.5006 per share from the company’s capital surplus, payable to shareholders on July 15, 2023. This reflects the company’s cash generation abilities.
CAH initiated and completed a $250 million accelerated share repurchase program in the third quarter, resulting in a total of $1.5 billion in year-to-date share repurchases in the fiscal year 2023.
On April 27, Autolus Therapeutics plc (NAUTL), a clinical-stage biopharmaceutical company developing next-generation programmed T-cell therapies, announced its collaboration with CAH to support the launch and commercialization of its CAR T-cell therapies in the United States, subject to FDA approval.
This collaboration would accelerate speed to market and ensure that patients have more timely access to therapy, consequently boosting the prospects of CAH.
CAH’s trailing-12-month asset turnover ratio of 4.65x is significantly higher than the industry average of 0.35x. Its trailing-12-month ROTC and ROTA of 27.61% and 1.07% compare to the industry averages of negative 23.20% and 33.39%, respectively.
CAH’s revenue has grown at 9% and 8.1% CAGRs over the past three and five years, respectively. Moreover, its total assets and levered FCF have grown at 1.8% and 39.4% CAGRs over the past three years, respectively.
For the fiscal third quarter of the fiscal year 2023, which ended March 31, 2023, CAH’s revenues increased 12.6% year-over-year to $50.49 billion. Its gross margin stood at $1.79 billion, indicating a 6.1% increase year-over-year.
CAH’s non-GAAP net earnings and non-GAAP EPS stood at $447 million and $1.74, representing increases of 11.2% and 20% year-over-year, respectively.
Analysts expect CAH’s EPS for the fiscal fourth quarter ending June 2023 to increase 40.4% year-over-year to $1.47. Moreover, the company’s revenue for the same quarter is expected to grow 11.8% from the prior-year quarter to $52.64 billion. The company surpassed revenue estimates in all the trailing four quarters, which is impressive.
The stock has gained 48.9% over the past year to close the last trading session at $84.79. Moreover, it has gained 8.1% over the past six months. The stock is trading above its 50-day and 200-day moving averages of $79.07 and $75.34, respectively.
CAH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Value and a B for Sentiment and Quality. Within the Medical – Services industry, it ranks #2 out of 75 stocks.
Beyond what has been highlighted above, one can see CAH’s ratings for Momentum and Stability here.
Cidara Therapeutics, Inc. (CDTX)
Biotechnology company CDTX focuses on the discovery, development, and commercialization of long-acting anti-infectives for treating and preventing infectious diseases and oncology in the United States.
On April 24, CDTX announced the receipt of a $20 million milestone payment from Melinta Therapeutics following the U.S. FDA approval of REZZAYO™ (rezafungin for injection), a novel, once-weekly echinocandin antifungal approved for the treatment of candidemia and invasive candidiasis.
As a result, CDTX remains eligible to receive additional non-dilutive capital of up to approximately $47 million in development and regulatory milestones from its existing partnerships based on the successful completion of activities planned for the next year. This will likely strengthen its balance sheet.
CDTX’s trailing-12-month asset turnover ratio of 1.21x is 243.2% higher than the industry average of 0.35x.
CDTX’s revenue has grown at a 52.5% CAGR over the past three years.
CDTX’s total revenues came in at $25.99 million for the fiscal first quarter that ended March 31, 2023, up 265.6% year-over-year. Its total operating expenses decreased 9.3% year-over-year to $23.01 million.
Also, for the same quarter, its net income attributable to common shareholders and net earnings per common share stood at $2.53 million and $0.03, compared to net loss and net loss per share of $18.28 million and $0.27, respectively, for the prior-year quarter.
Analysts expect CDTX’s revenue to increase 85.8% year-over-year to $11.55 million for the fiscal second quarter ending June 2023. Its EPS is expected to improve 31.6% year-over-year in the same quarter. It surpassed consensus revenue and EPS estimates in three of the four trailing quarters.
Over the past year, the stock has gained 197.2% to close its last trading session at $1.37. It has gained 106% over the past six months. The stock is trading above its 50-day and 200-day moving averages of $1.25 and $0.97, respectively.
CDTX’s solid prospects are reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Sentiment, and Quality. It is ranked #14 in the 378-stock Biotech industry.
Get the additional POWR Ratings for CDTX here (Momentum and Stability).
Geospace Technologies Corporation (GEOS)
GEOS operates as a designer and manufacturer of instruments and equipment used in the oil and gas industry for acquiring seismic data used to locate, characterize, and monitor hydrocarbon-producing reservoirs. The company operates through Oil & Gas Markets; Adjacent Markets; and Emerging Markets segments.
GEOS’ trailing-12-month levered FCF margin of 7% is 22.2% higher than the industry average of 5.73%. Its trailing-12-month asset turnover ratio of 0.77x is 14.7% higher than the industry average of 0.67x.
GEOS’ revenue has grown at 4.6% and 8.7% CAGRs over the past three and five years, respectively. Moreover, its EBITDA has grown at a 4.5% CAGR over the past three years.
GEOS’ total revenue increased 27% year-over-year to $31.37 million for the fiscal second quarter that ended March 31, 2023. This can be attributed to a rise in rental revenue of 336% from the prior-year period to $13.67 million.
The company’s net income and income per common share for the same quarter stood at $4.64 million and $0.35, compared to the net loss and net loss per common share of $1.47 million and $0.11, respectively, for the year-ago quarter.
For the six months that ended March 31, 2023, GEOS’ cash and cash equivalents stood at $22.81 million compared to $8.21 million for the six months that ended March 31, 2022.
GEOS’ President and CEO, Walter R. Wheeler, said, “We believe the company’s path to profitability through conservative management, a strong balance sheet, and market cultivation will continue to yield positive results.”
The stock has gained 80% over the past six months to close its last trading session at $8.44. Also, the stock gained 46% over the past three months. The stock is trading above its 50-day and 200-day moving averages of $7.54 and $5.45, respectively.
It’s no surprise that GEOS has an overall B rating, which translates to Buy in our POWR Ratings system.
The stock has an A grade for Momentum and a B for Growth, Sentiment, and Quality. It is ranked #4 out of the 45 stocks in the Energy – Services industry.
To see the additional POWR Ratings for Value and Stability for GEOS, click here.
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BSX shares were trading at $51.93 per share on Wednesday morning, up $0.43 (+0.83%). Year-to-date, BSX has gained 12.23%, versus a 7.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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