2 Stocks with Plenty of Room to Get Bigger With another solid employment report for September undermining the Fed's persistent efforts to fight inflation, the borrowing costs are expected to increase further with another significant rate hike next month....

With another solid employment report for September undermining the Fed's persistent efforts to fight inflation, the borrowing costs are expected to increase further with another significant rate hike next month. However, businesses with enough scope for further market penetration are better placed to endure near-term macro headwinds. It could be wise to invest in fundamentally strong stocks ADT Inc (ADT) and Flower Foods (FLO) with significant upside potential. Read on….

The recent jobs data released by the Labor Department revealed that the unemployment rate fell to 3.5% last month from 3.7% in August, matching a half-century low that was last reached in July. Employers added 263,000 workers in September, adjusted for seasonality.

While this is a good indicator of economic strength, it could influence the Federal Reserve to maintain its hawkishness to curb the surging inflation. The workforce expansion is still well above the monthly gains of around 50,000 that economists think would keep the unemployment rate from falling.

The stock market on Friday responded with a steep intraday decline. The treasury yields increased on concerns over borrowing becoming more expensive. Greg Mankiw, a Harvard University economist, also voiced similar concerns regarding overcompensation by the Fed, "Powell's right that some pain is probably inevitable…but you don't want to cause more than is necessary."

So, fundamentally strong businesses with stable and growing demand for their products are well positioned to emerge stronger despite uncertain market conditions. Hence, it could be wise to invest in fundamentally sound stocks ADT Inc. (ADT) and Flowers Foods, Inc. (FLO), which possess significant upside potential.

ADT Inc. (ADT)

ADT provides security, interactive, and innovative home solutions to serve residential, small business, and commercial customers in the United States. Its segments include Consumer and Small Business (CSB); Commercial; and ADT Solar business (Solar).

On September 6, 2022, ADT announced its partnership with State Farm. State Farm will make a $1.2 billion equity investment in ADT, resulting in State Farm owning approximately 15% of ADT. Additionally, ADT plans to partner with State Farm and build upon its existing relationship with Alphabet (GOOG) (GOOGL), with the latter agreeing to commit an additional $150 million to support this opportunity.

On August 30, ADT announced its partnership with Uber (UBER) to integrate ADT mobile safety solutions into the Uber app for riders and drivers in the United States to get live help, via phone or text, from ADT professional monitoring agents. This marks yet another addition to ADT's growing Clientele that utilizes Safe by ADT to power their app-based mobile safety features.

For the second quarter of the fiscal year 2022 ended June 30, ADT's total revenue increased 22.8% year-over-year to $1.60 billion, while the company's adjusted EBITDA grew 10.1% year-over-year to $597 million. The company reported an adjusted net income of $50 million and $0.06 per share, compared to an adjusted net loss of $55 million and $0.07 per share in the previous-year quarter.

ADT has grown its revenue at a 6.3% CAGR over the last three years. Analysts expect ADT's revenue for the fiscal year ending December 2022 to increase 19.6% year-over-year to $6.35 billion. The company's EPS for the current year is expected to come in at $0.52, compared to a loss of $0.25 per share during the previous fiscal year.

Over the past six months, ADT's stock has gained 15.9% to close the last trading session at $8.29.

ADT's POWR Ratings reflect its bright prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Growth and a B for Stability. ADT is ranked #9 out of 61 stocks in the Home Improvement & Goods industry.

Click here to see the additional ratings of ADT for Value, Momentum, Sentiment, and Quality.

Flowers Foods, Inc. (FLO)

FLO is involved in the production and marketing of packaged bakery foods. The company offers fresh bread, buns, rolls, snack cakes, tortillas, frozen bread, and rolls. Its portfolio includes brands such as Nature's Own, Dave's Killer Bread (DKB), Wonder, Canyon Bakehouse, Tastykake, and Mrs. Freshley's.

On October 3, 2022, FLO launched a website to seek real-world consumer feedback on its newest creations, designed to extend its business beyond the bread aisle. This initiative is expected to improve customer engagement by enabling their participation in the product development process and lead to eventual top-line growth.

On July 12, FLO announced its investment in Base Culture, a fast-growing brand that offers gluten-free and grain-free sliced bread and other baked goods. It would help FLO align itself better with the needs and demands of health-conscious consumers.

For the fiscal 2022 second quarter ended July 16, 2022, FLO's sales increased 11% year-over-year to $1.13 billion. Cash inflows from operating activities came in at $59.68 million for the quarter. The company's total assets stood at $3.34 billion as of July 16, 2022, compared to $3.25 billion on January 1, 2022.

FLO has grown its revenue at a 4.2% CAGR over the last three years. The company's net income and EPS increased at 6.6% and 6.7% CAGRs during the same period. Analysts expect FLO's revenue for the fiscal year 2022 to increase 10.9% year-over-year to $4.80 billion, while its EPS for the ongoing year is expected to grow 3.2% year-over-year to $1.28.

FLO has dipped marginally over the past year to close the last trading session at $24.55.

It's no surprise that FLO has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. In addition, it has an A grade for Growth and a B for Quality.

FLO is ranked #4 out of 86 stocks in the B-rated Food Makers industry. Click here for the additional ratings for FLO (Value, Momentum, Stability, and Sentiment).

ADT shares were unchanged in premarket trading Monday. Year-to-date, ADT has declined 0.00%, versus a -22.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant.With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.

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