Following the midterm elections, it is clear that voters are rejecting extremist candidates on both sides, while moderates and independents are on the rise. This article looks at some takeaways from the election and 3 stocks that should do well: Walmart (WMT), Expedia (EXPE), and Northrop Grumman (NOC).
It’s interesting that even as the world becomes more connected, it seems to become more unpredictable. We have had a number of recent elections with results that were contrary to expectations, and the latest midterms are no exception.
In essence, there were expectations of a massive ‘red wave’ that would propel Republicans into control of the House and Senate. Instead, it looks more like a ‘red wave’ as Republicans are likely to take control of the House with a slim 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 prominence of issues like crime and inflation.
However, Democrats also have reason for optimism. They did much better, especially in relation to the grim expectations, by keeping the Senate. In fact, it was the best showing by an incumbent party in the midterm elections since 2002. There was also a clear trend of voters rejecting far-right candidates involved in electoral denial. They also took control in states like Colorado and Michigan at multiple levels of government.
The final conclusion is that it was a loss for the extreme wings of both parties and a victory for the moderates focused on more conventional and basic issues. As a result, we are likely to see continued support for the war in Ukraine, increased fiscal discipline, and a focus on areas of bipartisan support such as infrastructure and a tough stance on China.
Here are 3 actions that will thrive in this new political reality:
EXPE is one of the largest online reservation companies in the world. It operates through multiple segments, including Expedia, Vrbo, Hotels.com, Orbitz, Travelocity, and Wotif. Additionally, it offers a range of travel and non-travel verticals, including for corporate travel management, airlines, travel agencies, online retailers, and financial institutions.
Like many travel stocks, EXPE is seeing a huge increase in revenue and bookings due to pent-up travel demand from people. However, the share price has languished due to market concerns about a slowdown and a possible recession.
Thus, EXPE shares are down more than 50% from their all-time high in February this year. Despite this, the earnings outlook for the stock remains strong. This year, analysts expect the company to earn $7 per share, rising to $9 per share in 2023.
This combination of growth and value makes the stock quite attractive. It is one of the main reasons why EXPE has a B rating, which is equivalent to a Buy rating. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. B-rated stocks have posted an average annual return of 21.1%, which compares favorably with the S&P 500’s average annual gain of 8.0%.
Click here to view EXPE’s full POWR ratings.
Northrop Grumman (CON)
NOC is a defense contractor with segments in aeronautics, mission systems, defense services, and space systems. Like LMT, NOC has underperformed in recent years. Since 2018, stocks are up 4%, while the S&P 500 is up 58%.
This is despite interest rates trending down and the NOC continuing to rise at an impressive rate. As their business continues to improve, NOC shares should be bought as they are quite attractive with a P/E ratio of 14 and an above-average dividend yield of 1.7%. Additionally, defense spending in 2021 and 2022 is expected to grow marginally despite concerns that a Democratic administration will choose other priorities.
Like LMT, NOC has a growth component given its exposure to the space industry. Its subsidiary, SpaceLogistics LLC, has completed the docking of the Mission Extension Vehicle-2 to the Intelsat 10-02 commercial communications satellite to provide life extension services. And NOC is one of the leading companies in the extension and maintenance of satellites in orbit.
Its latest earnings report demonstrates that its underlying business continues to grow and compose as it beat expectations and raised its forecast for the full year. He delivered $6.42 a share in earnings, beating expectations of $5.75 a share. This marked its fourth consecutive quarter beating earnings estimates. Revenue of $9.2 billion also beat expectations of $8.9 billion. It also raised its full-year EPS guidance to $24.80 per share from $24 per share previously.
The combination of growth and value of NOC is certainly tempting. So it’s no surprise that NOC has an overall B rating, which represents a buy. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. B-rated stocks have an average annual return of 19.7%, which compares favorably with the S&P 500’s 7.1% annual return. To view more NOC POWRs, 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 giant that revolutionized the entire industry.
These efforts have continued to this day, as evidenced by its rapidly growing e-commerce business and the introduction of Walmart Plus, which aims to keep the company competitive against Amazon (AMZN) and other startups. It has also successfully expanded into groceries, which is one of the fastest growing parts of its business. Recent supply chain disruptions due to the pandemic have also posed their own set of challenges, with many retailers unable to fully stock inventory, resulting in revenue falling short of targets. Walmart was able to get around this problem as the company chartered its own ships from Asia and placed its orders well in advance to ensure that it could meet the needs of its customers during the holiday season.
Walmart is also a great defensive stock. During periods of inflation, consumers prioritize value and volume, which means you see more foot traffic. Likewise, it also sees increased activity during periods when the economy slows down due to its low prices.
As a result, the company has consistently increased its revenues, earnings, free cash flow, margins, and dividends over many years and has successfully weathered numerous challenges, including the Great Recession, the tariff war, and recent challenges related to the pandemic, such as the supply chain. interruptions and labor shortages.
In 2022, Wall Street projects a 17% increase in earnings per share to $6.41, which correlates with a forward P/E of 21.6. Currently, Wall Street analysts have a $172 price target on the stock, implying a 19% upside.
WMT has an overall A rating, which translates to Strong Buy in our POWR rating system. The stock has strong ratings in multiple categories, including Growth and Value. It is also the third ranked value in the Supermarkets/Big Retail industry. To see WMT’s full POWR ratings, click here.
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Shares of WMT closed at $142.58 on Friday, up $0.22 (+0.15%). Year-to-date, WMT is down -0.29%, versus a -15.12% rise in the benchmark S&P 500 index over the same period.
About the author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for almost a decade. The goal of it is to help readers identify risks and opportunities in the markets. She is the chief growth strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. She learns more about Jaimini’s background, along with links to her most recent articles.
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