Maxim Manturov, Head of Investment Research at Freedom Finance Europe, gives investors insight into the top-performing stocks for February 2023
The market experienced serious losses in 2022, but the tide is turning in 2023. Last month, investors were given a glimmer of hope for the beginning of a market recovery, which was up 6% since the beginning of the year. While investors are still experiencing high-interest rates, the potential for debt default, and the ongoing discussion of a recession in their minds, we are likely to see financial recovery over the course of the year.
For investors looking to add or rearrange their portfolios to complement their long-term investment strategies, we have researched the top-performing stocks that have the potential for significant returns.
Splunk is a Software as a Service (SaaS) company that provides data indexing, ERP options and cybersecurity. They also offer a cloud option that provides more value to shareholders, as the company is not constrained by a fixed revenue stream determined by competitors. Splunk recently reported strong third-quarter results, posting a 40% increase in total revenue to $930 million (£766m) and a 54% increase in cloud revenue to $374 million (£308m). This success was driven by strong demand for term licenses from existing customers, who continue to see the value of Splunk’s mission-critical security and surveillance solutions.
Even in the current economic climate, there is still a strong demand for digital transformation. Splunk technology provides scalability and partnership that organisations need to ensure the security, reliability, and performance of their systems. Splunk’s unique technology has been recognised by industry experts including Gartner, naming the company a leader in its Magic Quadrant for nine consecutive years.
Adobe is one of the major beneficiaries of the digital transformation trend we are seeing in businesses today, making its services virtually irreplaceable. In recent years, Adobe’s growth rate has maintained double digits, it has shown stable revenue and earnings per stock growth and has proven to have high profitability and a strong market position, making it a potential leader in the next bull market.
Both revenue growth and margins in this challenging market environment show that demand for Adobe products and services remains strong. Adobe is optimistic about the near-term outlook of its financial results, which will put investors at ease. It is also important to note that in estimates for 2023, Adobe has yet to consider the potential benefits of the Figma acquisition, which, if successful, will enable even better returns and increase investor profits.
Philip Morris (PM)
Philip Morris shows strong volume growth potential, which is mainly driven by its tobacco heating units. Since the beginning of the year, cigarette sales in the market are up 1.4%, while sales of heated tobacco products are up 19.2%.
Philip Morris IQOS tobacco heating systems are the second best-selling HTU brand in the countries where it is sold. Global brand recognition is growing rapidly, and Philip Morris will gain full control of commercialisation rights for IQOS in the US in April 2024, acting as a solid growth point. This is a key factor in the company’s expansion, adding approximately 60% to the existing international market for smokeless products. Its goal is to capture 10% of the cigarette and HTU market by 2030.
Philip Morris has produced very stable financial results and the company distributes around 80% of its free cash flow by paying dividends to its shareholders. The dividend yield is currently at 5% and is expected to grow by 3.4% over the next year.
Google will continue to grow in value despite the turbulent macroeconomic environment which has seen advertising budgets being cut at a double-digit rate in 2023. Alphabet recently reported decent earning results and is well-positioned to strengthen its rank in the digital advertising market. It is doubling down on video content and launching its monetisation programme for YouTube Shorts next year to gain an edge in the short-form video market.
For the foreseeable future, search and video are likely to be Google’s biggest growth drivers and will help its stocks bounce back from their current oversold zone. Recent reports already suggest that search is one of the most resilient segments in the digital advertising industry. Search spending is projected to grow 14.5% this year alone to $99 billion (£82bn) and is set to continue to grow in the years ahead.
Demand for Tesla vehicles has increased at a rapid pace, setting the stage for its long-term growth. This growth has incentivised Tesla to ramp up production around the globe. Over the next two years, additional production facilities will be commissioned and new growth drivers created, along with new products hitting the market this year.
In 2022, Tesla vehicle deliveries were up 40% to 1.31 million (£1m) and production was up 47% to 1.37 million (£1.1m). Interestingly, these figures don’t fit the headlines concerning a fall in demand for Tesla’s products. In fact, results like this, with a recession on the horizon and closures across China due to Covid outbreaks, can be considered a success.
Tesla’s recent price cuts have spurred demand in a big way. Profits per unit will fall slightly, but thanks to economies of scale and increased battery shipments, Tesla can still significantly increase revenue and maintain its gross margin advantage over other brands.