It’s interesting that even as the world gets more connected, it seems to be getting more unpredictable. We have had a string of recent elections with outcomes that went contrary to expectations, and the latest midterm elections are no exception.
In essence, there were expectations of a massive ‘red wave’ which would propel Republicans to control of the House and Senate. Instead, it looks more like a ‘red ripple’ as Republicans are likely to take control of the House with a small majority but fail to win the Senate. They also made gains in states like Florida and the northeast corridor due to gains among non-white voters and the rising salience of issues like crime and inflation.
However, the Democrats also have reason for optimism. They did much better especially relative to bleak expectations by keeping the Senate. In fact, it was the best showing by an incumbent party in the midterms since 2002. There was also a clear trend of voters rejecting candidates on the far right engaged in election denialism. They also took control in states like Colorado and Michigan at multiple levels of government.
The ultimate takeaway is that it was a loss for the extreme wings of both parties and a win for moderates focused on more mainstream and bread and butter issues. As a result, we are likely to see continued support for the war in Ukraine, increased fiscal discipline, and focus on areas of bipartisan support like infrastructure and a tough on China stance.
Here are 3 stocks that will thrive in this new political reality:
EXPE is one of the largest online booking companies in the world. It operates through multiple segments including Expedia, Vrbo, Hotels.com, Orbitz, Travelocity, and Wotif. In addition, it offers a range of travel and non-travel verticals, including for corporate travel management, airlines, travel agents, online retailers, and financial institutions.
Like many travel stocks, EXPE is seeing a huge surge in revenues and bookings due to people’s pent-up demand for travel. However, the stock price has languished due to the market’s concern of a slowdown and potential recession.
Thus, EXPE’s stock is down more than 50% from its all-time high in Februay of this year. Despite this, the stock’s earnings outlook remains strong. This year, analysts expect the company to earn $7 per share which will climb to $9 per share in 2023.
This combination fo growth and value makes the stock quite attractive. It’s a major reason why EXPE is rated a B which equates to a Buy rating. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. B-rated stocks have posted an average annual performance of 21.1% which compares favorably to the S&P 500’s average annual 8.0% gain.
Click here to see EXPE’s complete POWR Ratings.
Northrop Grumman (NOC)
NOC is a defense contractor with segments in aeronautics, mission systems, defense services, and space systems. NOC has underperformed in the last couple of years like many defense & aerospace stocks. Since 2018, shares are up 4%, while the S&P 500 is up 58%.
This is despite interest rates trending lower, and NOC continuing to compound at an impressive rate. Given that its business continues to improve, NOC shares should be bought as it’s quite attractive with a price-to-earnings ratio of 14 and an above-average dividend yield of 1.7%. Further, defense spending in 2021 and 2022 is expected to grow marginally despite concerns that a Democratic administration would choose other priorities.
NOC has a growth component given its exposure to the space industry. Its subsidiary, SpaceLogistics LLC, completed the docking of the Mission Extension Vehicle-2 to the Intelsat 10-02 commercial communications satellite to deliver life-extension services. And, NOC is one of the leading companies in extending and servicing satellites that are in orbit.
Its latest earnings report demonstrates that its underlying business continues to grow and compound as it topped expectations and raised its forecast for the full year. It delivered $6.42 per share in earnings, beating expectations of $5.75 per share. This marked its fourth straight quarter of beating earnings estimates. Revenue at $9.2 billion also topped expectations of $8.9 billion. It also increased its full-year EPS forecast to $24.80 per share from $24 per share previously.
NOC’s combination of growth and value is certainly enticing. Thus, it’s not surprising that NOC has an overall B rating, which represents a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree. B-rated stocks have an average annual performance of 19.7% which compares favorably to the S&P 500’s annual performance of 7.1%. To see more of NOC’s POWR Ratings, click here.
WMT is a retail giant that accounts for 3.1% of all consumer spending in the US. The company was an innovator in terms of discounting and building a logistics and fulfillment behemoth that disrupted the entire industry.
These efforts have continued to this day as evidenced by its fast-growing e-commerce business and introduction of Walmart Plus, which is intended to keep the company competitive with Amazon (AMZN) and other upstarts. It’s also successfully expanded into groceries which is one of the fastest-growing parts of its business. The recent supply chain disruptions due to the pandemic have also posed its own set of challenges with many retailers unable to fully stock inventory, resulting in revenues falling short of their targets. Walmart was able to evade this issue as the company chartered its own ships from Asia and put in its orders well in advance to ensure that it would be able to meet its customers’ needs during the holiday season.
Walmart is also a great defensive stock. During periods of inflation, consumers prioritize value and bulk which means that it sees more foot traffic. Similarly, it also sees increased activity during periods when the economy slows due to their low prices.
As a result, the company has consistently grown its revenues, earnings, free cash flow, margins, and dividends across many years and successfully navigated numerous challenges such as the Great Recession, the tariff war, and recent pandemic-related challenges such as supply chain disruptions and a labor shortage.
In 2022, Wall Street is projecting a 17% increase in EPS to $6.41 which correlates to a 21.6 forward P/E. Currently, Wall Street analysts have a $172 price target on the stock which implies 19% upside.
WMT has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has strong grades across multiple categories including Growth and Value. It’s also the third-ranked stock in the Grocery/Big Box Retailers industry. To see WMT’s complete POWR Ratings, click here.
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