Concerns over the Fed’s tighter monetary policy and the banking crisis will likely tip the economy into a recession. However, that should not deter investors from investing in quality stocks Johnson & Johnson (JNJ) and Pfizer Inc. (PFE), which could help retire a millionaire.
According to market pricing and Wall Street experts, the Federal Reserve likely will approve a quarter-percentage-point interest rate increase this week. February’s inflation data signaled a cooling but still the persistent rate of 6%, much too high from the Fed’s target of 2%.
Moreover, the labor market remained resilient, with low unemployment rates and strong nonfarm payroll additions in February.
The Fed is expected to return to its aggressive rate hikes as soon as the banking crisis eases. Following the recent bank insolvencies, Goldman Sachs chief economist, Jan Hatzius, said he now sees a 35% chance of a U.S. recession in the next 12 months, up from 25% previously. This could pile further pressure on the stock market in the upcoming months.
Given the uncertainties, investors could look to add fundamentally strong dividend-paying stocks JNJ and PFE to their portfolios.
Johnson & Johnson (JNJ)
JNJ researches and develops, manufactures, and sells various products in the healthcare field worldwide. It operates under three segments: Consumer Health; Pharmaceutical; and MedTech.
On December 22, 2022, JNJ announced its acquisition of Abiomed, Inc. (ABMD). JNJ’s CEO, Joaquin Duato, believes that this acquisition is essential to accelerate growth in its MedTech business segment and deliver innovative medical technologies to more people worldwide.
In terms of the trailing-12-month gross profit margin, JNJ’s 67.36% is 21.3% higher than the 55.54% industry average. Its 34.46% trailing-12-month EBITDA margin is significantly higher than the 3.39% industry average. Likewise, its 0.51x trailing-12-month asset turnover ratio is 51.4% higher than the industry average of 0.34x.
Over the last three years, JNJ’s dividend payouts have grown at a 6% CAGR. Its four-year average dividend yield is 2.61%, and its forward annual dividend of $4.52 per share translates to a 2.94% yield. It paid a quarterly dividend of $1.13 per share on March 7, 2023.
JNJ’s U.S. sales increased 2.9% year-over-year to $12.52 billion for the fourth quarter that ended December 31, 2022. Its non-GAAP net earnings rose 9.5% year-over-year to $6.22 billion. The company’s non-GAAP EPS increased 10.3% from the year-ago value to $2.35.
JNJ’s EPS for the quarter ending June 30, 2023, is expected to increase 0.9% year-over-year to $2.61. Its revenue for the quarter ending March 31, 2023, is expected to increase 0.7% year-over-year to $23.58 billion. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has fallen 4.1% to close the last trading session at $153.89.
JNJ’s strong fundamentals are reflected in its POWR Ratings. It 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 #7 of 166 stocks. Click here to see the additional POWR Ratings of JNJ for Growth, Momentum, and Sentiment.
Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic and women’s health, biosimilars, sterile injectable and anti-infective medicines, and oral COVID-19 treatment.
On March 10, 2023, PFE announced that the U.S. Food and Drug Administration (FDA) had approved ZAVZPRET™ (zavegepant), the first and only calcitonin gene-related peptide (CGRP) receptor antagonist nasal spray for the acute treatment of migraine in adults.
PFE’s Chief Commercial Officer and president at Global Biopharmaceuticals Business, Angela Hwang, said, “ZAVZPRET underscores Pfizer’s commitment to delivering an additional treatment option to help people with migraine gain relief and get back to their daily lives. Pfizer will continue to build its migraine franchise to further support the billions of people worldwide impacted by this debilitating disease.”
PFE’s 43.88% trailing-12-month EBITDA margin is significantly higher than the 3.39% industry average. Its 66.02% trailing-12-month gross profit margin is 18.9% higher than the industry average of 55.54%. Furthermore, the stock’s 0.53x trailing-12-month asset turnover ratio is 56.1% higher than the industry average of 0.34x.
Over the last three years, PFE’s dividend payouts have grown at a 5.2% CAGR. Its four-year average dividend yield is 3.65%, and its forward annual dividend of $1.64 per share translates to a 4.02% yield. It paid a quarterly dividend of $0.41 per share on March 3, 2023.
For the fiscal fourth quarter ended December 31, 2022, PFE’s revenues increased by 1.9% to $24.29 billion. The company’s adjusted income increased 44.2% year-over-year to $6.55 billion. Its adjusted EPS came in at $1.14, representing a 44.3% increase from the prior-year quarter.
PFE’s EPS and revenue for fiscal 2024 are expected to increase 15.2% and 3.4% year-over-year to $3.91 and $71.51 billion, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. The stock has fallen 5.6% over the past month to close the last trading session at $40.81.
PFE’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #23 in the same industry. The stock has an A grade for Value and a B for Quality.
Beyond what we stated above, we have also given PFE grades for Growth, Momentum, Stability, and Sentiment. Get all PFE ratings here.
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JNJ shares were trading at $153.14 per share on Tuesday morning, down $0.75 (-0.49%). Year-to-date, JNJ has declined -12.69%, versus a 3.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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