Annual inflation in the United States hit 7% in December, registering its highest level since 1982, while core inflation, which leaves out volatile food and energy prices, rose 5.5%. In addition, consumer prices surged 0.5% month-over-month.
Stocks closed at session lows on Thursday’s regular trading, as the Dow Jones Industrial Average (DJIA) shed 0.89%, while the S&P 500 declined 1.1%, reversing from their gains earlier in the trading session. On top of it, Federal Reserve officials are expected by economists to signal interest rate hike next week.
Inflation’s impact on a stock’s return can vary. Therefore, it might be reasonable to bet on fundamentally strong mega-cap tech behemoth Microsoft Corporation (MSFT) and Alphabet Inc. (GOOGL), as these stocks might have the capability to withstand amid inflationary pressures. According to Dakota Wealth Management portfolio manager Robert Pavlik, healthcare is a ‘prime candidate’ in an inflationary environment. Hence, sound healthcare stocks UnitedHealth Group Incorporated (UNH) and AbbVie Inc. (ABBV) could be solid bets.
Microsoft Corporation (MSFT)
MSFT is a software behemoth providing software services, solutions, and devices worldwide. The company sells its products through distributors, OEMs, resellers, or digital marketplaces. It has a more than $2 trillion market capitalization.
On January 18, MSFT declared its plans to acquire Activision Blizzard Inc. (ATVI), game development and interactive entertainment company, for an all-cash transaction valued at $68.7 billion. The acquisition is expected to accelerate the growth of MSFT’s gaming business across different mediums and provide the building blocks of the ‘metaverse.’
On December 2, MSFT and CVS Health Corporation (CVS) announced a strategic alliance for developing innovative solutions for consumers’ health. Given the accelerated transformation initiatives in the healthcare sector, this alliance can prove profitable for MSFT.
On December 1, MSFT made Teams Essentials, a stand-alone affordable Microsoft Teams offering designed for small businesses. The collaboration solution should be in demand given the popularity of remote working and hybrid work structures.
For the fiscal first quarter ended September 30, MSFT’s total revenue increased 22% year-over-year to $45.32 billion. Operating income increased 27.5% from the prior-year quarter to $20.24 billion. Net income and EPS stood at $20.51 billion and $2.71, registering an increase of 47.6% and 48.9% year-over-year, respectively.
Analysts expect MSFT’s EPS to improve 14.5% year-over-year to $9.22 for the fiscal year 2022, while Street revenue estimate of $197 billion for the same year indicates a rise of 17.2% from the prior year. In addition, the stock has beaten consensus EPS estimates in each of the trailing four quarters, which is impressive.
MSFT’s stock has gained 34.4% over the past year to close yesterday’s trading session at $301.60. It has gained 8% over the past six months.
MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MSFT has a Stability, Sentiment, and Quality grade of B. In the 165-stock Software – Application industry, it is ranked #16. Click here to see the additional POWR Ratings for MSFT (Growth, Value, and Momentum).
Alphabet Inc. (GOOGL)
The parent company of Google is one of the largest tech companies in the world. The company offers popular platforms such as Search, Maps, Ads, Gmail, Chrome, and YouTube.
On December 20, Opera Limited (OPRA), a PC and mobile browser provider, announced the renewal of the multi-year commercial agreement with GOOGL to distribute Google Search in Opera browsers. GOOGL should stand to benefit from this agreement.
GOOGL’s revenues increased 41% year-over-year to $65.12 billion in the fiscal third quarter ended September 30. Operating income rose 87.6% from the prior-year quarter to $21.03 billion. Net income and EPS improved 68.4% and 70.7% from the prior-year period to $18.94 billion and $27.99, respectively.
The consensus EPS estimate of $27.22 for the fiscal fourth quarter indicates a 22.1% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $72 billion reflects an improvement of 26.5% from the prior-year quarter. Moreover, GOOGL has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 41.8% over the past year and 5.6% over the past six months to close yesterday’s trading session at $2,666.15.
It’s no surprise that GOOGL has an overall B rating, which translates to Buy in our POWR Rating system. GOOGL has an A grade for Sentiment and a B grade for Quality. It is ranked #3 out of the 77 stocks in the Internet industry.
To see the additional POWR Ratings for Growth, Value, Momentum, and Stability for GOOGL, click here.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company that operates through the four broad segments of UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx. The company offers consumer-oriented health benefit plans, access to networks of care providing specialists, software and information products, and pharmacy care services.
On January 20, MarinHealth Medical Center and UNH’s Optum segment announced a strategic relationship for supporting MarinHealth in providing accessible care for residents of North Bay. The partnership might prove profitable for the company by bolstering local care systems.
On January 11, UNH announced that it is investing in new ways to support overall eye health and reduce exposure to blue light. John Ryan, the CEO of UnitedHealthcare Vision, said, “We are taking a comprehensive approach to help our more than 23 million vision members and people across the country reduce their exposure to blue light, enhancing our whole-person approach to health benefits and vision care.”
For the fiscal fourth quarter ended December 31, UNH’s total revenues increased 12.6% year-over-year to $73.74 billion. Earnings from operations improved 57.5% from the prior-year period to $5.54 billion. Adjusted net earnings, attributable to UNH and adjusted EPS, came in at $4.28 billion and $4.48, up 76.8% and 77.8% from the prior-year quarter, respectively.
Street EPS estimate for the quarter ending March 2022 of $5.66 reflects a rise of 6.6% year-over-year. Likewise, Street revenue estimate of $78.75 billion for the same period indicates an increase of 12.2% from the prior-year quarter. UNH has beaten consensus EPS estimates in each of the trailing four quarters.
UNH’s shares have gained 32% over the past year and 12.1% over the past six months to close yesterday’s trading session at $463.00.
This promising outlook is reflected in UNH’s POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. UNH has a Growth, Stability, and Quality grade of B. It is ranked #2 out of 11 stocks in the Medical – Health Insurance industry. The industry is rated B.
Click here to see the additional POWR Ratings for Value, Momentum, and Sentiment for UNH.
AbbVie Inc. (ABBV)
ABBV engages in the discovery, development, manufacture, and sale of pharmaceuticals worldwide. The company’s offerings include pharmaceutical products such as autoimmune and intestinal disease therapy, HUMIRA, adult plaque psoriasis treatment, SKYRIZI, and adult rheumatoid arthritis treatment, RINVOQ.
On January 14, ABBV announced that the U.S. Food and Drug Administration (FDA) had approved RINVOQ® (upadacitinib) for the treatment of moderate to severe atopic dermatitis in adults and children above 12 years. The oral pill should add to the company’s revenue stream.
On December 16, ABBV company Allergan Aesthetics announced the acquisition of Soliton, Inc. (SOLY). The acquisition is expected to add to the company’s portfolio of non-invasive body contouring treatments, with a proven treatment for cellulite appearance.
ABBV’s net revenues increased 11.2% year-over-year to $14.34 billion in the fiscal third quarter ended September 30. Adjusted earnings after tax improved 17.9% from the prior-year period to $5.95 billion, while adjusted EPS came in at $3.33, up 17.7% from the prior-year quarter.
The consensus EPS estimate of $3.28 for the fiscal fourth quarter indicates a 12.3% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $14.95 billion reflects an improvement of 7.9% from the prior-year quarter. Additionally, ABBV has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 18.1% to close yesterday’s trading session at $133.03. It has gained 14.6% over the past six months.
ABBV has an overall rating of A, which translates to Strong Buy in our POWR Rating system. The stock has a B grade for Growth, Value, and Quality. In the 188-stock Medical – Pharmaceuticals industry, it is ranked #13.
In addition to the POWR Rating grades we’ve stated above, one can see ABBV ratings for Momentum, Stability, and Sentiment here.
MSFT shares were trading at $296.03 per share on Friday afternoon, down $5.57 (-1.85%). Year-to-date, MSFT has declined -11.98%, versus a -7.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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