“Rule number one: never lose money. Rule number two: never forget rule number one.” This is how the fabled investor Warren Buffett, fondly known as the Oracle of Omaha, summed up the simple, although not necessarily easy, the art of investing.
Speculative investments in ‘growth’ stocks had gone from having their day in the Sun, back when money was virtually free, to facing their day of reckoning amid increasing borrowing costs and pressure to survive profitably. Hence, for beginner investors and investors with hard lessons looking for a new beginning, it could be wise to get back to basics.
To that end, basing portfolios on fundamentally strong and resilient businesses Pfizer Inc. (PFE), Centene Corporation (CNC), and Kellogg Company (K) could be wise.
Pfizer Inc. (PFE)
As a world-renowned research-based biopharmaceutical company, PFE discovers, develops, manufactures, sells, and distributes biopharmaceutical products, such as medicines, vaccines, and other therapies. The company operates through two segments: Biopharma and PC1.
On January 6, PFE announced that the U.S. Food and Drug Administration (FDA) accepted for priority review a supplemental Biologics License Application (sBLA) for its 20-valent pneumococcal conjugate vaccine candidate (20vPnC) for the prevention of invasive pneumococcal disease (IPD).
Priority Review designation by the FDA reduces the standard sBLA review period by four months. If approved, this can help expand the protection for the vulnerable pediatric population affected by the disease.
On December 21, 2022, PFE announced that the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) had accepted its regulatory submissions for Etrasimod for individuals living with moderately to severely active ulcerative colitis (UC). In addition to UC, it is being investigated for various immuno-inflammatory diseases.
On December 9, PFE announced its regular quarterly dividend of $0.41 per share of common stock, payable March 3, 2023, to holders of record at the close of business on January 27, 2023. The first-quarter 2023 cash dividend will be Pfizer’s 337th consecutive quarterly dividend.
PFE pays a dividend of $1.64 per share annually, translating to a yield of 3.73% at the current price. This compares favorably to the 4-year average dividend yield of 3.63%. The company’s dividend payouts have increased at 5.5% CAGR over the past five years.
During the fiscal year 2022, due to contributions from Paxlovid and Comirnaty, which offset a 7% reduction due to foreign exchange, PFE increased its revenues by 23.4% year-over-year to a record $100.33 billion. Ten medicines or vaccines that generated revenues of more than $1 billion each helped the company achieve this feat.
PFE’s income from continuing operations during the previous fiscal year increased 39.8% year-over-year to $31.40 billion. The company’s adjusted income also increased more than 62% year-over-year to $37.72 billion, or $6.58 per share.
PFE’s trailing 12-month gross profit margin of 65.90% is higher than the industry average of 55.48%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 43.42% and 31.27% comfortably exceed the industry averages of 3.91% and negative 5.84%, respectively.
PFE has an impressive earnings surprise history as it has topped the consensus EPS estimates in each of the trailing four quarters. The stock has dipped 10.8% over the past six months to close the last trading session at $44.34. In terms of its forward P/E, PFE is trading at 12.24x, 40.2% lower than the industry average of 20.46x.
PFE’s steady prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PFE has an A grade for Value and a B for Quality. It is ranked #23 of 171 stocks in the Medical – Pharmaceutical industry.
Click here for additional POWR Ratings for PFE’s Growth, Stability, Sentiment, and Momentum.
Centene Corporation (CNC)
CNC provides government-sponsored and commercial healthcare programs focusing on underinsured and uninsured individuals. It also provides education and outreach programs to inform and assist members in accessing appropriate healthcare services. The multi-national healthcare company operates through the Managed Care and Specialty Services segments.
On January 23, CNC completed its previously announced divestiture of Magellan Specialty Health to Evolent Health, Inc. (Evolent). CNC acquired Magellan Specialty Health, also known as NIA, in January 2022 as part of its acquisition of Magellan Health, Inc.
CNC received approximately $660 million in proceeds at closing, with roughly $400 million paid in cash and the remainder paid in Evolent common stock, with up to an additional $150 million in cash and common stock on offer if certain performance metrics are achieved.
This closely followed the successful closure of its divestiture of Magellan Rx to Prime Therapeutics LLC (Prime) on December 5, 2022.
CNC hailed the transaction as another significant milestone in their ongoing portfolio review and value creation plan.
On December 16, 2022, CNC announced a diluted EPS guidance of $6.25 to $6.40 for 2023, with a long-term CAGR target of 12% to 15%. In addition, the company’s Board of Directors has authorized a $2.0 billion increase to its existing stock repurchase program. The increase is in addition to the approximately $950 million remaining under the previously authorized program.
This demonstrates the management’s confidence in the company’s prospects while also increasing the intrinsic value of the holdings of existing shareholders.
For the third quarter of the fiscal year that ended September 30, 2022, CNC’s total revenues increased 11% year-over-year to $35.87 billion, driven by organic Medicaid and Medicare growth. During the same period, the company’s adjusted net earnings increased 1.3% year-over-year to $755 million, resulting in an adjusted EPS of $1.30, up 3.2% year-over-year.
CNC’s trailing-12-month EBITDA margin of 4.93% surpasses the industry average of 3.91%. Similarly, its trailing-12-month net income margins and ROCE of 1.51% and 7.77% also compare favorably to the respective negative industry averages.
For fiscal 2022, CNC’s revenue and EPS are expected to come in at $144.51 billion and $5.74, representing increases of 14.7% and 11.4% year-over-year, respectively. Moreover, the company has an impressive earning surprise history since it has surpassed EPS estimates in each trailing four quarters.
The stock has dipped 7.9% over the past year to close the last trading session at $72.57. It is currently trading at a forward P/E multiple of 12.65, which is 38.9% below the industry average of 20.72.
CNC’s fundamental strength and promising outlook are reflected in its overall POWR Rating of A, translating to a Strong Buy in our proprietary rating system. It has a B grade for Value and Quality.
CNC is ranked #6 of 11 stocks in the A – rated Medical – Health Insurance industry.
Click here to see additional ratings of CNC for Growth, Momentum, Sentiment, and Stability.
Kellogg Company (K)
K has manufactured snacks and convenience foods in 21 countries and marketed its products in 180 countries. The Company’s segments include North America; Europe; Latin America; and AMEA (Asia Middle East Africa).
On January 23, K reported early positive results with InGrained, a five-year partnership with Lower Mississippi River Basin rice farmers to help reduce their climate impact. During its pilot year, the program helped farmers implement climate-smart irrigation practices that achieved a reduction of more than 1,600 metric tons of greenhouse gases - the equivalent of taking more than 345 gasoline-powered cars off the road for one year.
On December 15, 2022, K paid its regular dividend of $0.59 per share on its common stock. This is the 392nd dividend that the company has paid to owners of common stock since 1925.
K pays $2.36 annually as dividends. This translates to a forward dividend yield of 3.49% at the current price., comparable to the 4-year average dividend yield of 3.57%. The company’s dividend payouts have grown at a 2% CAGR over the past five years.
On December 12, K announced that its Board of Directors approved a share repurchase authorization of up to $1.5 billion, under which the company may buy back its shares at its discretion from January 1, 2023, through December 31, 2025.
While demonstrating the management’s confidence in the company’s prospects, this decision would also increase the intrinsic value of the holdings of existing shareholders.
For the third quarter of fiscal 2022 ended October 1, 2022, K net sales increased 8.9% year-over-year to $3.95 billion, as positive price/mix, sustained momentum in snacks, noodles, and international cereal as well as rebounding North America cereal business more than offset the impacts of price elasticity, halted shipments into Russia, and adverse currency translation.
During the same period, K’s adjusted operating profit remained flat at $449 million, while the net income attributable to K increased by 1% year-over-year to $310 million. Also, its adjusted quarterly EPS increased 3.5% year-over-year to $1.18. The company’s adjusted quarterly EPS came in at $1.01.
K’s trailing-12-month EBITDA and net income margins of 16.39% and 10.01% surpass the industry averages of 11.14% and 4.08%. Similarly, its trailing-12-month ROCE of 38.39% also compares to the industry average of 10.40%.
Analysts expect K’s revenue and EPS for the fourth quarter of fiscal 2022 to come in at $3.66 billion and $0.85, representing increases of 7% and 2.4% year-over-year, respectively. Moreover, the company has impressed by surpassing consensus estimates in each of the trailing four quarters.
K’s shares have gained 6.7% over the past year to close the last trading session at $67.63. The stock is currently trading at a forward P/E multiple of 16.35, which is 14.5% below the industry average of 19.14.
K’s POWR Ratings reflect its stable prospects. The company’s overall B rating translates to a Buy in our proprietary rating system. The stock also has a grade of B for Quality.
K is ranked #28 of 82 stocks in the B-rated Food Makers industry.
Beyond what we’ve stated above, additional ratings for K’s Growth, Value, Momentum, Stability, and Sentiment are available here.
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PFE shares were trading at $44.24 per share on Friday morning, down $0.10 (-0.23%). Year-to-date, PFE has declined -12.87%, versus a 8.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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