Expansion of the U.S. economy for the fourth quarter of last year and moderating inflationary pressures led the Fed to choose a less aggressive stance. Hence, the central bank hiked rates by 0.25 percentage points. This revived investor optimism.
However, Fed Chair Jerome Powell has been clear about policymakers’ North Star: Getting inflation down to their 2% target. Signaling further rate hikes, he expressed cautious optimism, “We’re going to be cautious about declaring victory and sending signals that we think the game is won, because we've got a long way to go.”
In addition, some strategists anticipate that persistent rate hikes could tip the economy into recession. However, on the brighter side, with the economy performing better than expected, experts believe the economy is far away from recession.
Moody’s Analytics chief economist Mark Zandi commented post the recent job report, “Any concern the economy is in recession or close to a recession should be completely dashed by these numbers.”
Furthermore, Goldman Sachs slashed its forecasted 35% probability of the U.S. economy entering into recession to 25%. The bank believes that “continued strength in the labor market and early signs of improvement in the business surveys suggest that the risk of a near-term slump has diminished notably."
Against this backdrop, investors might add fundamentally strong stocks Johnson & Johnson (JNJ), The Coca-Cola Company (KO), and AstraZeneca PLC (AZN) to your portfolio to garner good returns in the foreseeable future.
Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company operates through the broad segments of Consumer Health; Pharmaceuticals; and MedTech.
On December 22, 2022, JNJ announced that it had completed its acquisition of Abiomed, Inc (ABMD), a heart, lung, and kidney support technologies company, for an enterprise value of approximately $16.60 billion. This acquisition is expected to broaden JNJ’s MedTech segment’s position as a cardiovascular innovator.
On January 3, 2023, JNJ declared a dividend for the first quarter of 2023 of $1.13 per share on its common stock, payable to shareholders on March 7, 2023. JNJ has raised dividends for 60 consecutive years. This reflects its cash generation abilities.
JNJ’s forward non-GAAP P/E of 15.54x is 23% lower than the industry average of 20.18x, while its forward EV/EBIT of 13.67x is 21.5% lower than the industry average of 17.42x.
For the fiscal fourth quarter of 2022, JNJ’s reported sales came in at $23.71 billion. Its non-GAAP adjusted net earnings rose 9.5% to $6.22 billion. The company’s non-GAAP adjusted net earnings per share rose 10.3% from its year-ago value to $2.35.
For the fiscal first quarter ending March 2023, the consensus EPS estimate came in at $2.52. Its revenue is expected to increase marginally year-over-year to $23.61 billion for the same quarter. Additionally, JNJ topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained marginally intraday to close its last trading session at $163.40.
JNJ’s POWR Ratings reflect this promising outlook. The stock 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.
JNJ is rated a B in Value, Stability, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #7 out of 172 stocks.
Click here to see additional POWR Ratings for JNJ (Momentum, Growth, and Sentiment).
The Coca-Cola Company (KO)
KO, a popular beverage company, manufactures, markets, and sells various non-alcoholic beverages worldwide. The company provides sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, tea and coffee, and energy drinks.
In September, KO and Molson Coors Beverage Company (TAP) expanded its exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails. It is set to be launched in more than 20 markets across the country in 2023, which should be beneficial for the company.
KO’s trailing-12-month EBIT margin of 28.90% is 283.1% higher than the industry average of 7.5%. Also, its trailing-12-month net income margin of 23.44% is 487.3% higher than the industry average of 3.99%.
For the fiscal third quarter that ended September 30, KO’s non-GAAP net operating revenue came in at $11.05 billion, up 10% year-over-year. Its non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion. Furthermore, its non-GAAP net income per share increased 6.2% year-over-year to $0.69.
For the fiscal first quarter ending March 2023, analysts expect KO’s EPS to come in at $0.63. Street expects its revenue to increase marginally year-over-year to $10.60 billion for the same quarter. Moreover, KO topped consensus EPS and revenue estimates in all four trailing quarters.
The stock has gained 1% over the past three months to close its last trading session at $60.07.
KO’s POWR Ratings reflect a promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
KO is also rated an A for Sentiment and a B for Stability and Quality. Within the A-rated Beverages industry, it is ranked #16 of 37 stocks.
To see additional POWR Ratings for Value, Growth, and Momentum for KO, click here.
AstraZeneca PLC (AZN)
Headquartered in Cambridge, the United Kingdom, AZN focuses on discovering, developing, manufacturing, and commercializing prescription medicines.
On January 16, 2023, AZN acquired Neogene Therapeutics Inc., a global clinical-stage biotechnology firm pioneering the discovery, development, and production of next-generation T-cell receptor therapies (TCR-Ts). Neogene’s experience with TCR-T could support AZN’s objective of improving patient outcomes.
Also, on January 9, AZN entered into a definitive agreement to acquire CinCor Pharma, Inc. (CINC), a clinical-stage biopharmaceutical business focused on developing novel treatments for chronic kidney disease along with resistant and uncontrolled hypertension.
With the addition of CINC’s candidate drug, baxdrostat (CIN-107), an aldosterone synthase inhibitor (ASI) for blood pressure management in treatment-resistant hypertension, the acquisition should strengthen AZN’s cardiorenal pipeline.
AZN’s forward non-GAAP P/E of 15.80x is 20.18% lower than the industry average of 21.7x, while its forward non-GAAP PEG of 1.02x is 49.7% lower than the industry average of 2.03x.
AZN’s total revenue increased 11.3% year-over-year to $10.98 billion in the fiscal third quarter that ended September 30, 2022. Its gross profit improved 31% year-over-year to $8 billion over the period, while its EBITDA increased 131.5% from its year-ago value to $2.58 billion.
AZN’s earnings per share for the quarter that ended September 30, 2022, stood at $1.06 compared to the loss per share of $1.10 for the quarter that ended September 30, 2021.
AZN’s EPS for the fiscal second quarter ending June 2023 is expected to improve 9.3% year-over-year to $0.94. Its consensus revenue estimate of $11.16 billion represents a 3.6% growth year-over-year for the same period. Moreover, AZN surpassed the consensus revenue estimates in each of the four trailing quarters.
AZN’s shares have gained 5.2% over the past three months and 1.2% intraday to close the last trading session at $64.29.
It’s no surprise AZN has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
AZN is also rated a B for Growth and Sentiment. Within the 172-stock Medical – Pharmaceuticals industry, it is ranked #12.
Click here for additional POWR Ratings for AZN for Value, Stability, Quality, and Momentum.
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JNJ shares were trading at $163.60 per share on Wednesday morning, up $0.20 (+0.12%). Year-to-date, JNJ has declined -7.39%, versus a 7.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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