Despite the slowdown in the Fed’s rate hike aggressiveness, the odds of a recession remain widespread. However, given the strong demand for technology products and services, the outlook for the industry looks bright. Therefore, investors could buy quality Salesforce Technology ( CRM ) stocks regardless of the downturn. However, the intrinsically weak BlackBerry (BB) might be best avoided. Continue reading….
Despite the slowdown in federal rate hikes and growing hopes that the economy will avoid recession, the New York Fed’s recession model puts the odds of a recession in the next 12 months at 57%.
However, the tech giants seem largely undeterred and bracing for any potential slowdown. Dana Peterson, the Conference Board’s chief economist, said: “They plan to mitigate risk by accelerating innovation and digital transformation, pursuing new opportunities in higher-growth markets, and revising business models — the three most frequently cited actions.”
Moreover, amid a growing market for emerging technologies such as Artificial Intelligence, the outlook for the tech industry is bright. The global artificial intelligence solutions market is projected to grow at a CAGR of 29.4% by 2028.
Tech stocks were under pressure last year due to macroeconomic issues. While investors could buy quality technology stock Salesforce, Inc. ( CRM ), despite lingering recession worries, the fundamentally weak BlackBerry Limited ( BB ) might be best avoided.
Stock to buy:
Salesforce, Inc. (CRM)
CRM provides customer relationship management technology that brings companies and customers together around the world.
CRM’s forward price/book of 2.74x is 31.9% lower than the industry average of 4.03x.
Trailing 12-month gross margin of 72.69% is 47.8% higher than the industry average of 49.18%. Its trailing 12-month leveraged FCF margin of 30.62% is 353.7% higher than the industry average of 6.75%.
CRM’s total revenue rose 14.2% year over year to $7.84 billion for the third quarter ended October 31, 2022. In addition, its gross profit was $5.75 billion, reflecting an increase of 14.5 % year over year. Its operating income was $460 million, up 1,110.5% year-on-year.
Analysts expect CRM’s revenue to grow 16.9% YoY to $30.97 billion for the current fiscal year, 2023. Its EPS is expected to grow 18.3% annually for the next five years. It beat EPS estimates in all four trailing quarters. Shares of CRM rose 21.9% year-to-date to close the last session at $161.62.
CRM’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. POWR ratings evaluate stocks against 118 different factors, each with its own weighting.
CRM has an A grade for Growth and a B grade for Emotion. In the Software – Applications industry, it is ranked #26 of 137 stocks. Click here for additional POWR ratings for value, momentum, stability and quality for CRM.
Stock to avoid:
BlackBerry Limited (BB)
Headquartered in Waterloo, Canada, BB provides intelligent software and security services to businesses and governments around the world. The company operates through three divisions: Cybersecurity; IoT? Licensing and Other.
BB’s forward EV/Sales of 3.61x is 22% higher than the industry average of 2.96x. Its forward price/sales of 3.57x is 23.7% higher than the industry average of 2.89x.
BB’s negative EBITDA and net income margins of 13.19% and 13.77% are lower than the industry averages of 11.28% and 2.89%.
BB’s revenue was $169 million for the quarter ended November 30, 2022, down 8.2% year over year. Its adjusted EBITDA was negative $22 million, compared to negative $8 million in the prior period. Additionally, gross margin fell 6.8% year-over-year to $109 million.
The Street expects BB’s revenue to decline 6% year-over-year to $674.73 million in the current fiscal year, 2023. Its EPS is expected to decline 110% year-over-year to negative $0.21 for same period. Over the past year, the stock has lost 41.4% to close the last session at $3.90.
BB’s POWR ratings reflect its poor outlook. It has an overall grade of D, which equates to a Sell in the POWR rating system.
It is rated D for speed, stability and quality. It is ranked #48 of 49 stocks in the Technology – Communications/Networking industry. To view BB Ratings for Growth, Value and Sentiment, click here.
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CRM shares. Year-to-date, CRM has gained 21.89%, versus a 4.36% gain in the benchmark S&P 500 over the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentary.
The publication 1 tech stock to buy in a downturn and 1 to avoid appeared first on StockNews.com