Got $2,000? Here are 2 battered growth stocks to buy right now

This bear market has driven down the value of many good company stocks, including those with nearly impenetrable moats or competitive advantages that allow them to dominate their markets. Two such beat stocks with these characteristics are Moody’s (AGC 2.60%) and Standard & Poor’s Global (SPGI 2.64%).

These two stocks belong to the same sectors and should rebound. Even if you only had $2,000 to invest, a handful of shares of these stocks would be a good investment. Here’s why.

Own your market

Moody’s and S&P Global are the two main credit rating agencies in the United States. They both hold a 40% market share, while a third major player, Fitch Ratings, controls around 15% of the market. That’s about a 95% market share between the three. There are several reasons why new competitors are unlikely to emerge to take market share from them.

First, they are huge established brands that the market recognizes and trusts. Second, there is no need for more than a few credit rating agencies; otherwise, the standard would be watered down. And third, there are many costly and complex regulatory hurdles that any new competitor would have to jump through to enter the market.

Both of these stocks have underperformed the market this year: Moody’s is down 32% year-to-date and S&P Global is down 30% as of June 23. The main reason is a slowdown in global bond issuance. If fewer bonds are issued, there are fewer bonds to value.

On June 1, S&P Global suspended its 2022 revenue guidance based on the credit ratings market meltdown. If these trends continue, bond issuance could fall in the higher percentages relative to 2021, while rated or billed issuance could be 30-35% lower. The company said Audiences revenue could be “negatively impacted by up to $600 million compared to previous revenue guidance.”

It’s no surprise that Moody’s and S&P Global saw lower revenue from their credit rating businesses in the first quarter. But what sets these companies apart is that they both have diverse revenue streams that typically don’t scale alongside their ratings businesses.

Analytics and market intelligence

Both of these companies have strong data and analytics businesses that provide market insights to businesses, institutions, and organizations. They both tend to perform well when markets are down because organizations tend to seek out this data to understand changing and uncertain markets.

Moody’s Analytics revenue jumped 23% in the first quarter year over year, while S&P Market Intelligence saw revenue jump 39% in the same quarter from a year earlier. S&P Global just bought IHS Markit to bolster its analytics business in markets it hadn’t previously served.

S&P Global also has two other sources of revenue: commodity information, through its Platt’s property, and its indices, including the S&P500. S&P Global saw revenue rise 18% year-over-year in the first quarter, while net profit jumped 61% on the boost of the acquisition of IHS Markit.

Both of these stocks have seen their valuations drop. Moody’s has a price-to-earnings (P/E) ratio of 25, down from around 34 a year ago, while S&P Global’s P/E ratio is 24, down from around 40 a year ago.

Of the two, I like S&P Global slightly better due to its more diversified revenue stream and the additional revenue potential of acquiring IHS Markit. But both of these stocks have shown strong long-term performance, with Moody’s posting an average annual return of 21.7% over the past 10 years, while S&P Global has posted an average annual return of 22% over the same period. period. Both are protected by their moats and income diversity and have great earning power to continue generating strong returns.

Garland K. Long