It’s natural for the economy to go through periodic booms and busts.
The world saw a sharp recovery when economies reopened and air travel resumed, as people started spending money on vacations and experiences.
However, dark clouds now loom on the horizon.
The International Monetary Foundation (IMF) has downgraded its outlook for the global economy next year, stating that “2023 will feel like a recession”.
Consumers also have to grapple with high inflation and rising interest rates.
During challenging times, it makes sense for investors to turn to solid names that generate healthy profits to help them tide through the storm.
We feature four profitable US growth companies that have been beaten down of late.
With lower valuations, there is a higher chance for these stocks to deliver double-digit returns in the future.
Microsoft (NASDAQ: MSFT)
Microsoft is a software and technology company that provides a range of products and services such as cloud computing, word processing software, and gaming.
The technology giant reported a sparkling set of earnings for its fiscal 2022 (FY2022) ending 30 June 2022.
Revenue increased 18% year on year to US$198.3 billion while operating profit rose 19.3% year on year to US$83.4 billion.
Net profit improved by 18.7% year on year to US$72.7 billion.
Microsoft has a strong balance sheet with US$104.7 billion of cash and total debt of US$49.8 billion.
The company also generated a free cash flow of US$65.1 billion, 16.1% higher than US$56.1 billion a year ago.
In line with the good results, the board of directors has raised Microsoft’s quarterly dividend to US$0.68, up 10% from the US$0.62 paid out last year.
In particular, Microsoft’s cloud business did very well, chalking up 28% year on year growth to US$25 billion.
This trend should continue as more businesses digitalise and tap into the cloud to grow their presence.
Alphabet (NASDAQ: GOOGL)
Alphabet is the company that owns the popular Google search engine.
It also offers cloud services and operates the video-sharing website YouTube.
For the first half of 2022 (1H2022), revenue rose 17.5% year on year to US$137.7 billion.
In particular, Google Cloud saw the fastest growth among Alphabet’s major divisions, registering revenue growth of 39.4% year on year to US$12.1 billion.
Operating profit rose 10.5% year on year to US$39.5 billion but net profit dipped by 11% year on year to US$32.4 billion.
The fall in net profit was due to an unrealised loss on equity securities for 1H2022 as opposed to an unrealised gain a year ago.
Alphabet has a robust balance sheet with total cash and investments of US$125 billion with a minimal debt of just US$14.7 billion.
The technology company also generated a free cash flow of US$27.9 billion for 1H2022, down 6.1% from the prior year.
Starbucks (NASDAQ: SBUX)
Starbucks is the world’s largest coffee chain with more than 34,000 stores worldwide.
The company saw total revenue for the first nine months of fiscal 2022 (9M2022) rise 14% year on year to US$23.8 billion.
Operating profit remained flat year on year at US$3.4 billion due to higher distribution costs and store expenses and net profit dipped slightly to US$2.4 billion with higher tax expenses.
Same-store sales growth was up 3% globally for the third quarter and increased by 9% in the US.
Starbucks generated a free cash flow of US$2 billion for 9M2022.
The active Starbucks Rewards membership base in the US continues to grow, increasing by 13% year on year to 27.4 million members.
PayPal (NASDAQ: PYPL)
PayPal is an enabler of secure and convenient digital payments by connecting customers and vendors.
For the second quarter of 2022 (2Q2022), PayPal’s revenue rose 9% year on year to US$6.8 billion with total payment volume climbing 9% year on year to US$339.8 billion.
The payments company generated a higher free cash flow of US$1.3 billion for 2Q2022, up 22% year on year.
PayPal continues to work on productivity initiatives that should result in US$900 million of cost savings to be realised this year.
For 2023, the company expects to save US$1.3 billion and is slated to report operating margin improvement as well.
Elsewhere, PayPal also renewed its share repurchase authorisation with share buybacks projected to hit US$4 billion this year.
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Disclaimer: Royston Yang owns shares of Alphabet, PayPal and Starbucks.