The Federal Reserve raised interest rates seven times in 2022 to contain the multi-decade-high inflation. The Fed increased its benchmark interest rate to the highest level in 15 years, taking it to a range of 4.25% to 4.5% at its December meeting.
However, inflation is showing signs of cooling, as the Consumer Price Index (CPI) rose 6.5% year-over-year in December, down from 7.1% in November and a peak of 9.1% hit in June last year. With inflation’s continuous drop in December, Fed policymakers indicated a slowdown in the pace of rate hikes but no easing.
According to projections released by policymakers last month, Fed officials see rates rising as high as 5.1% this year until inflation gets down to its preferred level of 2%. Moreover, St. Louis Fed President Bullard favors raising rates above 5% ‘as soon as possible.’
The continuation of the Fed’s rate hikes is expected to keep the economy and the stock market under pressure. Jamie Dimon, CEO of JPMorgan Chase & Co. (JPM), has warned that continued rate hikes “might derail the economy and cause this mild to hard recession people are talking about.”
In addition, Morgan Stanley (MS) forecasts a 24% drop in the S&P 500 to between 3,000 and 3,300 in the first four months of 2023.
Amid the ongoing macroeconomic uncertainty, large-cap stocks are considered safe and mature investments since they typically have lower volatility associated with them and a stable dividend stream.
Hence, fundamentally sound large-cap stocks Microsoft Corporation (MSFT), UnitedHealth Group Incorporated (UNH), and Taiwan Semiconductor Manufacturing Company Limited (TSM) could be ideal additions to your portfolio this winter.
Microsoft Corporation (MSFT)
MSFT is a technology giant with a market capitalization of $1.78 trillion. It develops and supports software, services, solutions, and devices. The company’s segments include More Personal Computing; Intelligent Cloud; and Productivity and Business Processes.
On December 14, 2022, MSFT and Viasat, Inc. (VSAT) announced their collaboration to enable 10 million people to access the internet worldwide, including 5 million in Africa. VSAT is MSFT’s first satellite partner to enter the Airband Initiative.
The agreement could assist MSFT in expanding its operations by reaching distant places that previously had few options for conventional connectivity and swiftly scaling and expanding its Airband's coverage, exploring a larger pipeline of projects and new nations where it hasn’t yet worked.
Moreover, on December 12, MSFT and the London Stock Exchange Group (LSEG) announced a long-term strategic agreement to architect LSEG's data infrastructure using the MSFT Cloud and to develop new data and analytics products and services. MSFT could benefit from this alliance as it would enable its users to create business insights and automate difficult and time-consuming operations.
For the first quarter of fiscal 2023 ended September 30, 2022, MSFT’s total revenue increased 10.6% year-over-year to $50.12 billion, and its gross margin grew 9.5% from the year-ago value to $34.67 billion.
The company’s operating income rose 6.3% from the prior-year period to $21.52 billion, while its income before income taxes came in at $21.57 billion, up 5.1%year-over-year.
The company has increased its dividends for 18 consecutive years. It pays a $2.72 per share dividend annually, which translates to a 1.14% yield on the current price level. Moreover, MSFT’s dividend payouts have grown at a 10.4% CAGR over the past three years.
For the fiscal year ending June 2023, analysts expect MSFT’s revenue to increase 7.3% year-over-year to $212.65 billion. The company’s EPS for the current year is expected to grow to 3.7% from the previous year to $9.55. Moreover, MSFT surpassed its consensus EPS in three of four trailing quarters.
Shares of MSFT have gained 5.1% over the past five days to close the last trading session at $239.23.
MSFT’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock also has a B grade for Stability, Quality, and Sentiment. Within the Software - Business industry, it is ranked #9 of 52 stocks.
Beyond what we stated above, we also have MSFT’s ratings for Growth, Value, and Momentum. Get all MSFT ratings here.
UnitedHealth Group Incorporated (UNH)
With a market capitalization of $457.43 billion, UNH is a diversified healthcare firm in the United States. Its segments include UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx. The company provides access to networks of expert care providers, health benefit plans and services, and advisory consulting agreements.
On January 10, 2023, Optum, a UNH subsidiary, and Owensboro Health announced their partnership to improve patient care and experience in Western Kentucky and Southern Indiana. As per the agreement, roughly 575 Owensboro Health members are expected to join Optum in April 2023, assisting the firm in its operations.
Furthermore, on January 5, Optum and Northern Light Health established a strategic partnership to improve the healthcare experience for patients and caregivers throughout Maine. The firm should benefit from roughly 1,400 Northern Light Health employees joining Optum in March 2023 and working together to improve business processes through investment in cutting-edge technology and innovation.
For the fiscal fourth quarter that ended December 31, 2022, UNH’s total revenues increased 12.3% year-over-year to $82.79 billion, and its earnings from operations rose 24.4% from the year-ago value to $6.89 billion. In addition, adjusted net earnings attributable to UNH common shareholders increased 18.1% year-over-year to $5.06 billion, while its adjusted EPS came in at $5.34, up 19.2% year-over-year.
UNH pays a $6.60 per share dividend annually, which translates to a 1.35% yield on the current price level. Its dividend payments have grown at a 17.4% CAGR over the past five years. Moreover, the company has raised its dividends for 13 consecutive years.
The consensus revenue estimate of $358.99 billion for the fiscal year ending December 2023 indicates a 10.7% year-over-year improvement. The consensus EPS estimate of $24.95 for the same year reflects a rise of 12.4% from the prior year. Furthermore, UNH surpassed its consensus EPS in all four trailing quarters, which is impressive.
The stock has gained 4.7% over the year to close the last trading session at $489.57.
UNH’s strong prospects are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
UNH has a B grade for Sentiment, Stability, Growth, and Quality. In the 11-stock A-rated Medical - Health Insurance industry, it is ranked #2.
In addition to the POWR Ratings I’ve just highlighted, you can see UNH ratings for Value and Momentum here.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, tests, and sells integrated circuits and other semiconductor devices globally. The company’s goods are used in the markets for mobile devices, high-performance computers, and the internet of things. It has a market capitalization of $450.15 billion.
On December 6, 2022, TSM reported that in addition to the first fab in Arizona, construction had commenced on a second fab that should begin producing 3nm process technology in 2026. It is expected to be the largest foreign direct investment in Arizona's history and one of the biggest in American history, with a combined investment of over $40 billion for these two fabs.
By creating the most cutting-edge semiconductor process technology in the nation, the company aims to be the greenest semiconductor production facility in the United States.
Additionally, on October 27, TSM launched the Open Innovation Platform®(OIP) 3DFabric Alliance. This new 3DFabricTM Alliance is the sixth OIP Alliance for TSM and the first of its kind in the semiconductor industry. This should assist TSM's customers in rapidly deploying silicon and system-level innovations.
TSM’s net revenue for the fiscal fourth quarter ended December 31, 2022, increased 42.8% year-over-year to $19.93 billion, while its gross profit grew 68.7% from the prior year’s quarter to $12.40 billion. Its income from operations rose 77.8% from the year-ago value to $10.36 billion.
In addition, the company’s net income came in at $9.43 billion, a 77.8% rise from the previous year’s quarter, and its EPS grew 78% year-over-year to $0.36.
TSM pays a $1.82 per share dividend annually, translating to a 2.10% yield on the current price level. Its dividend payments have grown at a 9.6% CAGR over the past five years, and its four-year average dividend yield is 2.49%.
Analysts expect TSM’s revenue to increase 21.2% year-over-year to $92.77 billion for the fiscal year ending December 2024. The company’s EPS for the same year is expected to rise 23% from the previous year to $7. Moreover, TSM surpassed its consensus EPS in all four trailing quarters.
Shares of TSM have gained 7.7% over the past five days to close the last trading session at $86.80.
TSM’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has a Quality grade of A. Within the Semiconductor & Wireless Chip industry, it is ranked #28 of 93 stocks.
To see additional POWR Ratings for Growth, Value, Sentiment, Stability, and Momentum for TSM, click here.
MSFT shares were trading at $239.23 per share on Monday morning, up $0.72 (+0.30%). Year-to-date, MSFT has declined -0.25%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.3 Large-Cap Stocks to Add to Your Buy List This Winter appeared first on StockNews.com