The stock market experienced wild swings in the first half of 2022, as evidenced by the CBOE Volatility Index's (VIX) 28.4% year-to-date gains. Furthermore, the stock market is expected to remain under immense pressure due to sky-high inflation, consecutive interest rate hikes, and recessionary pressures.
In the current environment, investors prefer companies with solid profit margins and cash flows, as well as promising growth prospects. Such financially strong companies may be able to hedge against market uncertainties. The decline in such stocks due to the broader market sell-off has created an excellent opportunity to acquire these fundamentally sound stocks at bargain prices.
Given this backdrop, we believe quality stocks Johnson & Johnson (JNJ) and Costco Wholesale Corporation (COST), which have declined in price lately, could be solid additions to your portfolio.
Johnson & Johnson (JNJ)
JNJ is involved in researching, developing, manufacturing, and selling various healthcare products. The company operates in three segments: Consumer Health; Pharmaceuticals; and Medical Devices.
In June, J&J announced the opening of the new J&J Satellite Center for Global Health Discovery at Singapore's Duke-NUS Medical School, founded by Duke University and the National University of Singapore (NUS) as a graduate-entry medical school and research powerhouse.
The Satellite Center at Duke-NUS, the first of the J&J Centers for Global Health Discovery in the Asia-Pacific region, aims to help drive new solutions to address flaviviruses, which disproportionately impact communities across the region, by bringing together the talent and expertise of the world's largest healthcare company with that of a leading academic institution.
JNJ's reported sales increased 3% from the year-ago value to $24.02 billion for the second quarter ended June 30, 2022. The company's adjusted net earnings surged 4.3% from the prior-year quarter to $6.91 billion, while its adjusted EPS increased 4.4% year-over-year to $2.59.
Analysts expect the EPS to increase 2.8% year-over-year to $10.07 in fiscal 2022. The consensus revenue estimate of $95.12 billion in fiscal 2022 represents a 1.4% increase from the same period last year. While the stock has gained 4.5% over the past nine months, it has plunged 4.5% over the past year to close its last trading session at $170.20.
JNJ's POWR Ratings reflect this promising outlook. The company 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 also has an A grade for Stability and a B for Quality and Value. Within the F-rated Medical – Pharmaceuticals industry, it is ranked #6 of 174 stocks. Click here to see additional POWR Ratings for Sentiment, Momentum, and Growth for JNJ.
Costco Wholesale Corporation (COST)
COST and its subsidiaries operate membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. It provides branded and private-label products in a large range of merchandise categories.
For the third quarter ended May 08, 2022, COST's total revenue increased 16.2% from the year-ago value to $52.59 billion. Its operating income grew 7.7% year-over-year to $1.79 billion. The company's net income surged 10.9% from the prior-year quarter to $1.35 billion, while its EPS rose 10.5% year-over-year to $3.04.
COST’s EPS is expected to grow at the rate of 13.7% per annum over the next five years. The consensus revenue estimate of $226.24 billion in fiscal 2022 represents a 15.5% increase from the same period last year. While the stock has gained 23.3% over the past year, it is down 5.4% year-to-date to close its last trading session at $541.90.
It is no surprise that COST has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Growth and Sentiment. In the A–rated Grocery Big/Box Retailers industry, it is ranked #27.
Beyond the POWR Ratings grades I have just highlighted, you can view COST ratings for Momentum, Value, and Stability.
JNJ shares were trading at $170.33 per share on Tuesday afternoon, up $0.13 (+0.08%). Year-to-date, JNJ has gained 0.85%, versus a -12.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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