High inflation, stronger-than-expected jobs growth, and tighter lending standards in the wake of the banking crisis are fueling the fears of a recession later this year. Although the Fed had indicated that there could be a pause in interest rate hikes, the recently released strong macroeconomic data is increasing the odds of another rate hike this month.
In this scenario, investors could look to follow where institutions are investing their money in. Fundamentally strong stocks, Salesforce, Inc. (CRM), Chipotle Mexican Grill, Inc. (CMG), and Cohu, Inc. (COHU), are attracting the attention of smart money. Therefore, it could be wise to buy these stocks.
Before diving deeper into the fundamentals of these stocks, let’s discuss why it could be wise to follow in the footsteps of smart money.
Hedge funds, institutional investors, and established investors are often called smart money. They have considerable resources, access to extensive research and analysis, and expertise in various fields. Therefore, following their footsteps can help individual investors tap into their wisdom and gain from their expertise.
Let’s take a closer look at the featured stocks.
Salesforce, Inc. (CRM)
CRM is a cloud-based software company. It provides Customer Relationship Management (CRM) technology that brings companies and customers together worldwide. The company’s CRM software and application focus on sales, marketing automation, customer service, e-commerce, and analytics. Institutions own 80.7% shares of CRM.
On March 7, 2023, CRM announced the launch of Einstein GPT. This first generative AI CRM technology delivers AI-created content at a hyper-scale level across every sale, service, marketing, commerce, and IT interaction.
Einstein GPT will infuse CRM’s proprietary AI models with generative AI technology from an ecosystem of partners and real-time data from the Salesforce Data Cloud. The new launch is expected to boost the company’s growth and profitability.
In terms of the trailing-12-month gross profit margin, CRM’s 73.78% is 51.1% higher than the 48.83% industry average. Likewise, its 21.40% trailing-12-month EBITDA margin is 159% higher than the industry average of 8.26%. Furthermore, the stock’s 35.73% trailing-12-month levered FCF margin is 398.2% higher than the industry average of 7.17%.
CRM’s total revenues for the first quarter ended April 30, 2023, increased 11.3% year-over-year to $8.25 billion. Its net cash provided by operating activities increased 22.2% over the prior-year quarter to $4.49 billion. The company’s non-GAAP net income rose 70.5% year-over-year to $1.67 billion. In addition, its non-GAAP EPS came in at $1.69, representing an increase of 72.4% year-over-year.
Analysts expect CRM’s EPS and revenue for the quarter ending July 31, 2023, to increase 58.6% and 10.5% year-over-year to $1.89 and $8.53 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 60.6% year-to-date to close the last trading session at $212.90.
CRM’s POWR Ratings reflect this positive outlook. CRM has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #10 out of 133 stocks in the Software – Application industry. It has an A grade for Growth and a B for Sentiment and Quality. Click here to see the other ratings of CRM for Value, Momentum, and Stability.
Chipotle Mexican Grill, Inc. (CMG)
CMG owns and operates Chipotle Mexican Grill restaurants. It offers burritos, burrito bowls, quesadillas, tacos, and salads. Of the total outstanding shares of CMG, institutions own 92.8%.
In terms of the trailing-12-month gross profit margin, CMG’s 40.02% is 13.5% higher than the 35.27% industry average. Likewise, its 11.49% trailing-12-month net income margin is 168.4% higher than the industry average of 4.28%. Furthermore, the stock’s 1.33x trailing-12-month asset turnover ratio is 32.1% higher than the industry average of 1.01x.
For the fiscal first year ended March 31, 2023, CMG’s total revenue increased 17.2% year-over-year to $2.37 billion. The company’s adjusted net income rose 80.7% year-over-year to $291.64 million. Its adjusted EPS came in at $10.50, representing an increase of 84.2% year-over-year.
CMG’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 30.5% and 14.1% year-over-year to $12.14 and $2.53 billion, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 51.5% to close the last trading session at $2,082.33.
CMG’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It is ranked #14 out of 45 stocks in the A-rated Restaurants industry. In addition, it has a B grade for Momentum, Sentiment, and Quality. To see the other ratings of CMG for Growth, Value, and Stability, click here.
Cohu, Inc. (COHU)
COHU provides semiconductor test equipment and services in China, the United States, Taiwan, Malaysia, the Philippines, and internationally. The company supplies semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors, thermal sub-systems, and semiconductor automated test equipment for semiconductor manufacturers and test subcontractors. Institutions own 89.8% shares of COHU.
On January 30, 2023, COHU announced that it acquired MCT Worldwide, LLC, a leading semiconductor test handler automation equipment provider.
COHU’s President and CEO, Luis Müller, said, “I am happy to welcome MCT and its employees to the Cohu family. This acquisition provides an opportunity to expand our addressable market with film-frame test and laser marking equipment.”
In terms of the trailing-12-month EBIT margin, COHU’s 14.93% is 243% higher than the 4.35% industry average. Its 11.45% trailing-12-month net income margin is 422% higher than the 2.19% industry average. Likewise, its 9.96% trailing-12-month Return on Common Equity is considerably higher than the industry average of 0.63%.
COHU’s net sales for the first quarter ended April 1, 2023, came in at $179.37 million. Its long-term debt came in at $37.72 million, compared to $72.66 million for the fiscal year ended December 31, 2022. The company’s non-GAAP net income and EPS came in at $26.95 million and $0.56, respectively.
COHU’s EPS and revenue for fiscal 2024 are expected to increase 28.9% and 10.2% year-over-year to $2.59 and $766.49 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 44.9% to close the last trading session at $38.17.
COHU’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value and Sentiment. It is ranked #21 out of 91 stocks in the Semiconductor & Wireless Chip industry. Click here to see the other ratings of COHU for Growth, Stability, and Quality.
What To Do Next?
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CRM shares were trading at $215.14 per share on Friday morning, up $2.24 (+1.05%). Year-to-date, CRM has gained 62.26%, versus a 11.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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