Earnings season has brought its usual mix of rip-roaring rallies and steep sell-offs. In today's divergent market, many quality stocks are reaching all-time highs, while plenty of well-known stocks are also hitting 52-week lows.
The short-term gyrations can be confusing for investors looking to filter out the noise and focus on long-term fundamentals. The good news is that macroeconomic policy or a bad earnings quarter don't make or break a business.
Here's why Amazon.com (AMZN 3.95%), Roku (ROKU 2.11%), Brookfield Infrastructure (BIP 2.27%) (BIPC +0.00%), Ford Motor Company (F 2.28%), and Enphase Energy (ENPH 5.82%) are a mix of growth stocks and dividend stocks that are worth a look.
Image source: Getty Images.
A leader in e-commerce and cloud computing
Trevor Jennewine (Amazon): Macroeconomic turbulence took a toll on Amazon last year. High inflation simultaneously suppressed consumer spending and boosted operating expenses, while unfavorable foreign exchange rates blunted growth. Those headwinds led Amazon to report a GAAP loss in 2022, its first loss since 2014. But the company delivered strong results in the first quarter of 2023.
Revenue increased 9% to $127 billion, driven by better-than-expected sales in cloud computing and advertising, and Amazon returned to profitability as cost-cutting efforts began to take root. The company reported GAAP earnings of $0.31 per diluted share, up from a loss of $0.38 per diluted share in the prior year.
As a caveat, the near-term outlook for Amazon remains unclear given the tenuous state of the global economy. A recession could further mute consumer spending and business investments, but the company is well positioned to pick up steam when economic conditions improve.
Amazon is a key player in three industries: E-commerce, cloud computing, and digital advertising. Specifically, Amazon runs the world's most popular online marketplace, it's the market leader in cloud infrastructure and platform services, and it ranks as the fourth largest ad tech company. All three of those markets are expected to grow at roughly 14% annually through 2023, according to industry experts.
Shares of Amazon currently trade at 2.2 times sales, a bargain compared to the five-year average of 3.6 times sales. More importantly, that multiple looks cheap given the growth opportunities ahead. That's why investors could consider buying a small position in this FAANG stock in May.
NASDAQ: AMZN
Key Data Points
Roku: I can't stop endorsing this no-brainer buy
Anders Bylund (Roku): Media-streaming technology expert Roku's Q1 results turned heads last week, and I just can't resist recommending this persistently undervalued stock. So here I am, pounding the table for Roku again.
It's getting kind of silly, really. Wall Street keeps giving us more and more time to load up on this extreme buying opportunity, so let's take advantage of it. I, for one, can't stop buying more shares for myself.
The Q1 report only poured more fuel on that fire. Roku posted total first-quarter net revenue of $741 million, up 1% year over year. Management had guided this metric to roughly $700 million, so the reported results came in far above expectations. The company achieved this top-line surprise in spite of the ongoing macroeconomic weakness, which leads to ad buyers limiting their marketing campaigns until people get back to actually buying the stuff they're trying to sell. So the average revenue per user (ARPU) is down 5% year over year, but revenues inched upward anyhow.
The secret is more video-streaming customers and deeper engagement with Roku's viewing experience. The number of active Roku accounts increased from 70 million in the fourth quarter to 71.6 million three months later. 25.1 billion streaming hours was a 20% year-over-year increase. Furthermore, Roku has a robust balance sheet with $1.6 billion in cash equivalents and zero debt.
"Roku is not in the streaming wars," Roku president Charlie Collier reminded investors and analysts on the earnings call. "The streaming wars are being played out on our platform."
It doesn't matter whose show wins all the awards, goes viral on TikTok, or gets a three-season contract with record-breaking budgets per episode. Roku benefits from all of it. Isn't it nice to see the giants of the entertainment industry bending over backwards so they can give people more reasons to buy your media-consumption platform?
Trading at a mere 2.6 times trailing sales -- down from more than 30 times sales at the admittedly overvalued peak of early 2021 -- Roku is a handy bargain. So, once again, I heartily recommend snapping up some Roku shares right now. Don't miss this undervalued gem while the opportunity still stands.
NASDAQ: ROKU
Key Data Points
A great defensive pick
Keith Speights (Brookfield Infrastructure): You might have already heard that the Federal Reserve thinks a U.S. recession is more likely this year as a result of the banking turmoil. While I hope the Fed is wrong, my hunch is that it's right. If a recession is indeed coming, buying a defensive stock in May that's also well-positioned for the long run makes sense. Brookfield Infrastructure is such a stock.
Infrastructure is one of several industries that are largely recession-proof. Brookfield Infrastructure provides a way to invest in a wide range of infrastructure assets in one fell swoop. The company owns data centers, electricity distribution and transmission lines, natural gas pipelines, telecom towers, toll roads, and more.
This stock also pays you to wait for better days. Brookfield Infrastructure has increased its distribution by a compound annual growth rate of 9% since 2012. Its yield currently tops 4.4% for the limited partnership shares traded under the BIP ticker.
But Brookfield Infrastructure isn't just a recession play. The company should turbocharge its growth with the planned acquisition of Triton International, the world's top intermodal container leasing company. Adding Triton gives Brookfield Infrastructure a platform for solid growth in transportation and logistics.
Brookfield Infrastructure also has significant long-term growth prospects from trends such as decarbonization, digitalization, and deglobalization. It targets average annual funds from operation growth of at least 10%.
This legacy automaker is transforming
Neha Chamaria (Ford): Ford stock has struggled to hold up over the past year or so. Reasons abound -- surging costs, poor execution, unexpected losses, layoffs, rising interest rates, fears of a slowdown -- you name it.
Yet, while Ford can only do so much about macro headwinds, management knows where the company has faltered and is determined to turn around its weaknesses. This is something the market isn't paying much attention to but should, especially with Ford's Q1 earnings around the corner.
During its Q4 earnings release, CEO Jim Farley admitted the company should have fared better in 2022, and that it'll now prioritize execution and performance. So it's working on its supply chain, slashing costs, and streamlining its businesses.
To that end, Ford will change its financial reporting system from Q1 onwards, replacing its automotive segment with three new segments -- Ford Blue, Ford Model e, and Ford Pro. While Ford Blue will report numbers for Ford's traditional internal combustion engine vehicles, Ford Pro and Ford Model e segments will focus on commercial vehicles and electric vehicles (EVs), respectively.
Clearly, Ford wants to give investors a more transparent picture of its product portfolio and profitability from each. It also restated its numbers from last year, revealing how Ford Blue brought in the largest chunk of earnings before interest and taxes, followed by Ford Pro.
Ford is losing money on EVs for now. That's not to say you should sideline that business. In fact, Ford's EV sales are booming, so much so that it's rapidly increasing production capacity, especially for its hot-selling all-electric pickup truck, the Ford-150 Lightning.
Ford may still report muted numbers for 2023 as it works through its headwinds, but management's renewed focus on costs, cash flows, and growth makes the iconic auto stock one you'd want to buy while there's still time.
NYSE: F
Key Data Points
Enphase is an incredibly well-run business
Daniel Foelber (Enphase): Enphase Energy has been a market darling over the last few years and has been one of the best-performing solar stocks -- growing from a less than $5 billion market cap to over $22 billion today.
One of the challenges of a rapid valuation expansion is that it puts a lot of pressure on a company to live up to lofty expectations. This predicament has been plaguing Enphase stock, which suffered a staggering 25.7% single-day sell-off on Wednesday after the company reported excellent Q1 2023 results but forecasted slowing growth in the coming quarter.
Enphase is a highly volatile stock that can post rip-roaring rallies and sharp drops seemingly without warning. For that reason alone, approaching the stock requires a great deal of risk tolerance and patience.
But as wild as Enphase the stock has been, Enphase the company continues to do everything investors can hope for -- execute on its goals, take market share in key markets, and sustain high-profit margins.
The company is known for its microinverters. But its secret is a solutions suite that empowers users to manage the performance of a modular solar system that can be easily expanded, instead of a large-scale string inverter system. The Enphase energy ecosystem includes just about everything a homeowner would need to manage their own power, from rooftop microinverters powering solar panels (not made by Enphase), to EV charging control systems, meters, batteries, and pumps.
Enphase's results speak for themselves.
ENPH Revenue (Quarterly) data by YCharts
Despite higher revenue and an overall larger business, Enphase has sustained high margins and rapidly growing free cash flow and net income. Again, the business is doing incredibly well. Rather, the issue is that its growth rate can't keep up with a soaring stock price.
In many ways, the sell-off in Enphase could be a good thing for long-term shareholders who would prefer the company grows into its valuation instead of constantly having to play catch-up. Even after the sell-off, Enphase sports a 9.1 price-to-sales ratio and a 47.9 price-to-earnings ratio, which are at the low end of its three-year range but still indicate the stock has a premium valuation.
Enphase stock can do just about anything in the short term. But as long as Enphase the company continues to do well, the stock is worth a look for patient investors.
