The hotter-than-expected employment report and the Silicon Valley Bank crisis have dampened investor sentiment lately. While the Fed might deter from raising the interest rates by the expected 50 basis points, I think Johnson & Johnson (JNJ), Walmart Inc. (WMT), and General Electric Company (GE) are solid investments to survive the uncertainties and benefit in the long run.
Before I explain why these stocks are well-positioned to survive the market volatility and deliver solid returns in the long run, let’s see what’s dampening investors’ sentiment lately.
The recently-released February jobs report showed that the number of jobs added was lower than the unusually high January numbers. However, nonfarm payrolls rose by 311,000 last month, higher than the estimate of 225,000.
The Street expects the consumer price index to rise 6% year-over-year and 0.4% sequentially in February, while the core CPI is expected to have increased 5.5% year-over-year and 0.4% sequentially.
Last week, Fe Chairman Jerome Powell said, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.” “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he added.
The Fed was expected to raise rates by 50 basis points next week, but the spectacular collapse of the Silicon Valley Bank (SVB) will likely change the central bank’s outlook. The Fed would be looking to restore stability to the financial markets by undertaking a smaller interest rate hike or no hike at all.
Bob Schwartz, the senior U.S. economist at Oxford Economics, said, “The threat of a systemic disruption in the banking system is small, but the risk of stoking financial instability may well encourage the Fed to opt for a smaller rate increase at the upcoming meeting.”
Amid the ongoing uncertainty, quality stocks JNJ, WMT, and GE could be solid additions to one’s portfolio, given their strong fundamentals, reliable dividends, and solid growth prospects.
Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates under three segments: Consumer Health, Pharmaceutical, and MedTech.
Over the last three years, JNJ’s dividend payouts have grown at a 6% CAGR. Its four-year average dividend yield is 2.60%, and its forward annual dividend of $4.52 per share translates to a 2.95% yield. It paid a quarterly dividend of $1.13 per share on March 7, 2023.
In terms of trailing-12-month gross profit margin, JNJ’s 67.36% is 21.4% higher than the 55.48% industry average. Likewise, its 0.51x trailing-12-month asset turnover ratio is 51.4% higher than the industry average of 0.34x. Furthermore, the stock’s trailing-12-month levered FCF margin came in at 20.21% compared to the negative 4.17% industry average.
On December 22, 2022, JNJ announced the completion of its acquisition of Abiomed. JNJ’s CEO, Joaquin Duato, said, “This acquisition marks another important step on Johnson & Johnson’s path to accelerating growth in our MedTech business and delivering innovative medical technologies to more people around the world.”
JNJ’s U.S. sales increased 2.9% year-over-year to $12.52 billion for the fourth quarter ended January 1, 2023. The company’s adjusted net earnings increased 9.5% year-over-year to $6.22 billion. Also, its adjusted EPS came in at $2.35, representing an increase of 10.3% year-over-year.
Analysts expect JNJ’s revenue for the quarter ending March 31, 2023, to increase 0.7% year-over-year to $23.59 billion. Its EPS for the quarter ending June 30, 2023, is expected to increase 0.9% year-over-year to $2.61. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 6% to close the last trading session at $153.06.
JNJ’s strong fundamentals are reflected in its POWR Ratings. 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.
In addition, it has an A grade for Stability and a B for Value and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #5 of 167 stocks.
Click here to see the additional POWR Ratings of JNJ for Growth, Momentum, and Sentiment.
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club.
On January 5, 2023, WMT announced that it was now operating 36 drone delivery hubs across seven states. It completed more than 6,000 deliveries over the past year in as little as 30 minutes. The company is well positioned to offer drone delivery at scale; with its 4,700 stores located within 90% of the U.S. population, it will be able to deliver more items through drones helping it cut costs and drive higher revenues.
Over the last three years, WMT’s dividend payouts have grown at a 1.9% CAGR. Its four-year average dividend yield is 1.67%, and its forward annual dividend of $2.28 per share translates to a 1.66% yield. It is expected to pay a quarterly dividend of $1.13 per share on March 7, 2023.
In terms of the trailing-12-month Return on Common Equity, WMT’s 14.60% is 44.4% higher than the 10.12% industry average. Its 4.80% trailing-12-month Return on Total Assets is 21.4% higher than the 3.95% industry average. Likewise, its 2.50x trailing-12-month asset turnover ratio is 199.8% higher than the industry average of 0.84x.
WMT’s total revenues for the fourth quarter ended January 31, 2023, increased 7.3% year-over-year to $164.05 billion. Its adjusted operating income rose 6.9% year-over-year to $6.41 billion. The company’s consolidated net income attributable to WMT increased 76.2% year-over-year to $6.28 billion. In addition, its adjusted EPS came in at $1.71, representing an 11.8% increase from the year-ago quarter.
WMT’s revenue for the quarter ending April 30, 2023, is expected to increase 5% year-over-year to $147.24 billion. Its EPS for fiscal 2025 is expected to increase 11.4% year-over-year to $6.79. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 15% to close the last trading session at $137.37.
WMT’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
Within the A-rated Grocery/Big Box Retailers industry, it is ranked #3 out of 37 stocks. It has an A grade for Stability and a B for Growth, Value, Sentiment, and Quality. Click here to see WMT’s rating for Momentum.
General Electric Company (GE)
GE is a high-tech industrial company that operates in Europe, China, Asia, the Americas, the Middle East, and Africa. The company provides gas and steam turbines, a full balance of plant, upgrade, and service solutions, as well as data-leveraging software for power generation. It serves industrial, government, and other customers.
On March 2, 2023, GE announced that it plans to invest more than $450 million at its existing U.S. manufacturing facility this year by purchasing cutting-edge equipment and upgrading its position as it looks to create two independent companies in energy and aerospace.
On February 14, 2023, GE announced that Air India had signed a firm order for 40 GEnx-1B and 20 GE9X engines, also a multi-year TrueChoice engine services agreement. The deal was signed in coordination with the airline’s firm order for 20 Boeing 787 and 10 Boeing 777X aircraft.
Over the last three years, GE’s dividend payouts have grown at a 2.3% CAGR. Its four-year average dividend yield is 0.61%, and its forward annual dividend of $0.32 per share translates to a 0.36% yield. It is expected to pay a quarterly dividend of $0.08 per share on April 25, 2023.
In terms of trailing-12-month levered FCF margin, GE’s 5.05% is 27.8% higher than the 3.95% industry average.
GE’s total revenues for the fourth quarter ended December 31, 2022, increased 7% year-over-year to $21.79 billion. Its adjusted profit rose 37% over the prior-year quarter to $2.16 billion. Also, its adjusted EPS came in at $1.24, representing an increase of 51% year-over-year.
Analysts expect GE’s EPS for the quarter ending September 30, 2023, to increase 26.4% year-over-year to $0.44. Its revenue for fiscal 2024 is expected to increase 8.2% year-over-year to $67.79 billion. Over the past nine months, the stock has gained 68.4% to close the last trading session at $88.97.
GE’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Momentum, and Sentiment. Within the A-rated Industrial – Manufacturing industry, it is ranked #8 out of 34 stocks. Click here to see the other ratings of GE for Value, Stability, and Quality.
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JNJ shares rose $2.33 (+1.52%) in premarket trading Tuesday. Year-to-date, JNJ has declined -12.73%, versus a 0.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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