Despite a slowdown in the Fed’s rate hike aggression, recession probabilities are still widespread. However, given the robust demand for tech products and services, the prospects of the industry look bright. Therefore, investors could buy quality tech stock Salesforce (CRM), regardless of a recession. However, fundamentally weak BlackBerry (BB) might be best avoided. Keep reading….
Despite a slowdown in federal rate hikes and rising hopes of the economy evading a recession, according to the New York Fed’s Recession Probabilities model, the odds of a recession in the next 12 months are at 57%.
However, tech giants seem largely undeterred and are bracing themselves for any possible slowdown. Dana Peterson, the chief economist of the Conference Board, 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-cited actions.”
In addition, amid a growing market for emerging technologies like Artificial Intelligence, the prospects of the tech industry are beaming. The Global AI Solutions Market is projected to grow at a CAGR of 29.4% until 2028.
Tech stocks were under pressure last year due to macroeconomic issues. While investors could buy quality tech stock Salesforce, Inc. (CRM), despite the lingering recessionary concerns, 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 worldwide.
CRM’s forward Price/Book of 2.74x is 31.9% lower than the industry average of 4.03x.
Its trailing-12-month gross profit margin of 72.69% is 47.8% higher than the industry average of 49.18%. Its trailing-12-month levered FCF margin of 30.62% is 353.7% higher than the industry average of 6.75%.
CRM’s total revenues increased 14.2% year-over-year to $7.84 billion for the third quarter that ended October 31, 2022. In addition, its gross profit came in at $5.75 billion, reflecting an increase of 14.5% year-over-year. Its income from operations came in at $460 million, up 1,110.5% year-over-year.
Analysts expect CRM’s revenue to increase 16.9% year-over-year to $30.97 billion for the current fiscal year, 2023. Its EPS is expected to increase by 18.3% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters. CRM shares have gained 21.9% year-to-date to close the last trading session at $161.62.
CRM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CRM has an A grade for Growth and a B grade for Sentiment. In the Software – Application industry, it is ranked #26 out of 137 stocks. Click here for the additional POWR Ratings for Value, Momentum, Stability, and Quality for CRM.
Stock to Avoid:
BlackBerry Limited (BB)
Headquartered in Waterloo, Canada, BB provides intelligent security software and services to enterprises and governments worldwide. The company operates through three segments: 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 trailing-12-month 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 came in at $169 million for the quarter that ended November 30, 2022, down 8.2% year-over-year. Its adjusted EBITDA came in at negative $22 million, compared to negative $8 million in the year-ago period. Moreover, its gross margin decreased by 6.8% year-over-year to $109 million.
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 fall 110% year-over-year to negative $0.21 for the same period. Over the past year, the stock has lost 41.4% to close the last trading session at $3.90.
BB’s POWR Ratings reflect its poor prospects. It has an overall D grade, equating to a Sell in our POWR Ratings system.
It has a D grade for Momentum, Stability, and Quality. It is ranked #48 out of 49 stocks in the Technology – Communication/Networking industry. To see 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% rise in the benchmark S&P 500 index during 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 commentaries.