Risks associated with an economic slowdown, high inflation, and credit crunch woes have dampened the growth prospects. Amid this, we look into fundamentally sound stocks, Oracle Corporation (ORCL), Vertex Pharmaceuticals Incorporated (VRTX), and Humana Inc. (HUM), that could help one beat the market downturn.
A still-elevated inflation data, with the Consumer Price Index (CPI) rising 6% year-over-year in February, highlights that we are not yet out of the woods and that inflation remains a formidable foe. Following this, the Federal Reserve increased its benchmark interest rates by 25 basis points, expressing caution about the recent banking crisis.
The current economic backdrop has re-ignited recession fears and has raised concerns that global growth will weaken as the crisis heralds the end of the "easy-cash era" and the arrival of a credit crunch.
"There is a sizeable risk that the ongoing banking trouble triggers a 'sudden stop' in lending, which would then send the economy into the sort of recession which would go beyond what is strictly needed to tame inflation," said AXA Investment Managers Chief Economist Gilles Moec.
Furthermore, the World Bank warns of a 'lost decade' of global growth unless lawmakers adopt bold policy shifts to boost labor supply, productivity, and investment. It estimates that the average potential worldwide economic growth will slump to a three-decade low of 2.2% per year through to 2030.
Amid such uncertainties, fundamentally sound stocks ORCL, VRTX, and HUM could outperform in volatile markets and look well-positioned to survive any recession.
Oracle Corporation (ORCL)
ORCL provides products and services that address all aspects of corporate IT environments, including applications, platforms, and infrastructure worldwide. The company operates through cloud services and license support; cloud license; hardware; and services segments.
Recently, ORCL extended its collaboration with NVIDIA Corporation (NVDA) to include running NVIDIA AI Foundations and DGX Cloud on the new Oracle Cloud Infrastructure (OCI) Supercluster.
Clay Magouyrk, OCI’s executive vice president, said, “OCI is the first platform to offer an AI supercomputer at scale to thousands of customers across every industry. This is a critical capability as more and more organizations require computing resources for their unique AI use cases. To support this demand, we continue to expand our work with NVIDIA.”
On March 16, JVCKENWOOD Corporation, a Japanese video, audio, and telecommunications manufacturer, implemented Oracle Fusion Cloud Enterprise Resource Planning (ERP), including Oracle Fusion Cloud Enterprise Performance Management (EPM), to help standardize and centralize operational processes for improved efficiency and productivity.
With a strong track record for providing market-leading solutions, ORCL has garnered strong demand for its offerings over its peers.
In the same month, the company declared its quarterly dividend of $0.40 per share of outstanding common stock, reflecting a 25% increase over the last quarter, payable on April 24, 2023. ORCL’s four-year average dividend yield is 1.59%, and its current dividend of $1.60 translates to a 1.77% yield on the current price level.
Its dividends have grown at a 10.1% CAGR over the past three years and an 11% CAGR over the past five years. Also, it has a record of eight years of consecutive dividend growth.
The stock’s trailing-12-month net income margin of 17.46% is 544.8% higher than the 2.71% industry average. Likewise, its trailing-12-month ROTA of 6.36% is 847.4% higher than the industry average of 0.67%.
In the fiscal third quarter that ended February 28, 2023, ORCL’s total revenue increased 17.9% year-over-year to $12.40 billion. The company’s non-GAAP operating income grew 5.3% year-over-year to $14.75 billion, while its adjusted net income increased marginally from the year-ago value to $9.52 billion. Also, its non-GAAP EPS came in at $3.45, up 2.4% year-over-year.
Analysts expect ORCL’s revenue for the quarter ending May 2023 to increase 15.9% year-over-year to $13.73 billion. Its EPS for the current quarter is expected to increase by 2.7% from the year-ago period to $1.58. Moreover, it surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 48.2% to close the last trading session at $90.51.
ORCL’s POWR Ratings reflect its solid prospects. It has a B grade for Stability and Sentiment. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In the Software - Application industry, it is ranked #33 of 135 stocks. Click here to see the additional ratings of ORCL (Growth, Value, Momentum, and Quality).
Vertex Pharmaceuticals Incorporated (VRTX)
VRTX is a global biotechnology company that focuses on developing medicines to treat the underlying cause of Cystic Fibrosis (CF). It has a robust pipeline of investigational small molecule, cell, and genetic therapies in other serious diseases, including sickle cell disease, beta thalassemia, APOL1-mediated kidney disease, pain, type 1 diabetes, alpha-1 antitrypsin deficiency, and muscular dystrophies.
Recently, VRTX entered into a new non-exclusive licensing agreement with CRISPR Therapeutics AG (CRSP) for the use of CRSP’s gene editing technology, known as CRISPR/Cas9, to accelerate the development of VRTX’s hypo-immune cell therapies for the treatment of type 1 diabetes.
Bastiano Sanna, Executive Vice President and Chief of Cell and Genetic Therapies at VRTX, said, “Having successfully demonstrated clinical proof of concept in T1D in our VX-880 program, we are excited to deepen our relationship with CRISPR Therapeutics with this agreement, which will allow us to further accelerate our goal of generating fully differentiated, insulin-producing hypoimmune islet cells for T1D.”
On March 9, the company received clearance from the U.S. Food and Drug Administration (FDA) for the Investigational New Drug Application (IND) for VX-264, a novel encapsulated cell therapy to treat T1D. Such approvals should help VRTX in the successful trials and commercialization of VX-264 therapy globally.
In terms of trailing-12-month VRTX’s EBITDA margin of 50.69% is significantly higher than the industry average of 2.72%. In addition, its trailing-12-month ROCE and ROTC of 27.67% and 21.15% compare with the negative industry averages of 40.14% and 22.02%, respectively.
VRTX’s total revenue for the fiscal fourth quarter that ended December 31, 2022, increased 11.1% year-over-year to $2.30 billion. The company’s non-GAAP operating income grew 15.4% year-over-year to $1.15 billion, while its adjusted net income rose 25.9% from the year-ago value to $978 million. Also, its non-GAAP EPS increased 24.5% year-over-year to $3.76.
For the quarter ending March 31, 2023, VRTX’s revenue is expected to improve 11% year-over-year to $2.33 billion. Its EPS is expected to increase marginally year-over-year to $3.66 in the next quarter (ending June 2023). The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 21.7% over the past year to close the last trading session at $312.16.
VRTX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Sentiment. It is ranked #4 out of 378 stocks in the Biotech industry. To see the other ratings of VRTX for Growth, Momentum, and Stability, click here.
Humana Inc. (HUM)
HUM operates as a health and well-being company through three segments: Retail; Group and Specialty; and Healthcare Services. The company offers medical and supplemental benefit plans to individuals. It also provides insured medical and specialty health insurance benefits and pharmacy solutions.
On March 2, HUM and Aledade, a network of independent primary care providers, announced a decade-long agreement to provide value-based primary care from in-network Aledade-enabled clinicians to Humana's Medicare Advantage members. Through this collaboration, both companies aim to deliver personalized value-based health care for patients nationwide.
On February 16, the company declared a quarterly dividend of $0.885 per share, representing an increase of 12.4% from its previous dividend of $0.7875 per share. The dividend is payable to its stockholders on April 28, 2023.
HUM’s four-year average dividend yield is 0.65%, and its forward annual dividend of $3.54 translates to a 0.72% yield on current prices. Its dividend has grown at a 12.6% CAGR over the past three years and a 13.8% CAGR over the past five years. The company has a record of six consecutive years of dividend growth.
The stock’s trailing-12-month EBITDA margin of 4.95% is 81.7% higher than the 2.72% industry average. Also, its trailing-12-month ROCE, ROTC, and ROTA of 17.88%, 9.36%, and 6.52% compare with the negative 40.14%, 22.02%, and 31.61% industry averages, respectively.
In the fourth quarter that ended on December 31, 2022, HUM’s revenue increased 6.6% year-over-year to $22.44 billion. Its non-GAAP pre-tax income increased 58.4% from the year-ago value to $263 million, while its non-GAAP EPS came in at $1.62, representing a 30.6% year-over-year improvement.
The consensus EPS estimate of $9.35 for the fiscal first quarter (ending March 31, 2023) represents a 16.3% improvement year-over-year. The consensus revenue estimate of $26.49 billion for the current quarter represents a 10.5% increase from the same period last year.
Over the past year, the stock has gained 11.1% to close the last trading session at $488.36.
It is no surprise that HUM has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, and Sentiment. Out of ten stocks in the A-rated Medical - Health Insurance industry, it is ranked #2.
In addition to the POWR Ratings stated above, we have also given HUM grades for Momentum, Stability, and Quality. Get all HUM ratings here.
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ORCL shares were trading at $92.06 per share on Friday afternoon, up $1.55 (+1.71%). Year-to-date, ORCL has gained 13.05%, versus a 6.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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