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Capitalize on a Surging Nasdaq With These 3 Stocks

·4-min read

Following a brutal stretch to start the year, the tech-heavy Nasdaq has surged as of late, putting it in bull market territory. Needless to say, investors have welcomed the rally with open arms.

The rally was boosted by last week’s better-than-expected CPI print, with a strong earnings season further helping to lift stocks. Following the print, some market participants are betting on the Fed to slow down its pace of rate hikes.

Much of the Nasdaq’s struggles year-to-date can be attributed to a hawkish Fed, soaring costs, and geopolitical issues.

Now that buyers have returned, several stocks within the Index could see significant interest, including Adobe ADBE, Microsoft MSFT, and Dollar Tree DLTR. Below is a year-to-date chart of all three companies with the S&P 500 blended in as a benchmark.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Let’s take a look at each company a little closer.

Adobe

Adobe ADBE is one of the biggest software companies in the world, generating the bulk of its revenue via licensing fees from its customers. The company is currently a Zacks Rank #3 (Hold) with an overall VGM Score of a B.

Adobe’s growth prospects are rock-solid – for the company’s current fiscal year (FY22), the Zacks Consensus EPS Estimate of $13.51 reflects a strong 8.3% year-over-year uptick. And in FY23, earnings are forecasted to grow an additional 16%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The company’s 41.1X forward earnings multiple is undoubtedly on the high side, but this is typical of stocks with high-growth natures. Still, the value is nicely beneath its five-year median of 45.6X.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In addition, the company has been the definition of consistency within its bottom-line results, exceeding the Zacks Consensus EPS Estimate in 14 consecutive quarters. Just in its latest quarterly print, ADBE recorded a 1.5% bottom-line beat.

Microsoft

Microsoft MSFT is one of the largest broad-based technology providers in the world, dominating the PC software market with more than 80% of the market share for operating systems. The company currently carries a Zacks Rank #3 (Hold) with an overall VGM Score of a C.

Microsoft’s bottom-line projections allude to notable growth – the Zacks Consensus EPS Estimate of $10.14 for the company’s current fiscal year (FY23) pencils in a double-digit 10% uptick in earnings year-over-year. Looking ahead a bit, the $11.67 per share estimate for FY24 reflects a further 15% expansion of the bottom-line.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Microsoft’s forward earnings multiple resides at 28.9X, undoubtedly on the higher side but just above its five-year median of 28.4X and nowhere near highs of 37.5X in 2021. Shares trade at a 14% premium relative to their Zacks Sector.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The company has been on a blazing-hot earnings streak, exceeding the Zacks Consensus EPS Estimate in nine of its previous ten quarters. Over its last four, the average surprise has been a respectable 4.5%.

Dollar Tree

Dollar Tree DLTR is an operator of discount variety stores, offering a wide range of quality everyday general merchandise in many categories. The company sports a Zacks Rank #2 (Buy) with an overall VGM Score of an A.

Dollar Tree’s growth prospects are fantastic, further bolstered by its Style Score of an A for Growth. For the company’s current fiscal year (FY23), earnings are forecasted to soar by a remarkable 41%. And in FY24, the company’s bottom-line is forecasted to tack on an additional 15% of growth.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In addition, the company sports solid valuation levels – DLTR’s 20.4X forward earnings multiple is nowhere near highs of 26.5X in 2021 and represents a steep 24% discount relative to its Zacks Sector.

Dollar Tree carries a Style Score of a B for Value.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Dollar Tree has repeatedly reported bottom-line results above expectations, exceeding the Zacks Consensus EPS Estimate in 10 consecutive quarters. Just in its latest quarterly release, the discount retailer penciled in a robust 20% bottom-line beat.

Bottom Line

With a better-than-expected CPI print and a strong earnings season, stocks have found many buyers as of late. After a brutal first half, it looks like it could be time for the bears to finally go back into hibernation.

However, there’s still a challenging macroeconomic backdrop, of course. But, we’re still well above 2022 lows, a significant positive.

If the buying remains at this level, Microsoft MSFT, Adobe ADBE, and Dollar Tree DLTR shares stand to benefit massively.

All three companies have stellar growth prospects paired with a well-established nature, perks that any investor would seek in a stock.


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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
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