A third straight month of improvement in inflation data entails that economic conditions are improving. The inflation rate declined 0.1% sequentially and increased 6.5% year-over-year, indicating a sharp deceleration from the 7.1% rate in November and a 9.1% peak in June 2022.

This could lead the Federal Reserve to consider moderating the pace of its rate hike to restore price stability. After witnessing a slowdown in inflation, the U.S. rate futures market has priced in two 25-basis-point hikes in February and March.

Although prices are broadly seen as cooling from their 40-year high, they remain far above the 2% target. According to Bankrate’s fourth-quarter Economic Indicator survey, 46% of economists say inflation will largely be as expected over the next 12-18 months, while 15% say inflation will rise more significantly than expected.

Amid recessionary concerns, the stock market is expected to remain under pressure. However, this could be a golden opportunity for investors to reap big gains, especially from stocks that have been flying under the radar. 

Fundamentally strong stocks BHP Group Limited (BHP) and Centene Corporation (CNC) could be ideal picks in this scenario. These stocks have a ‘Strong Buy’ rating in our proprietary POWR Ratings system.

BHP Group Limited (BHP)

Headquartered in Melbourne, Australia, BHP operates as a resources company in Australia, Europe, China, Japan, India, South Korea, the rest of Asia, North America, South America, and internationally. It operates through Petroleum; Copper; Iron Ore; and Coal segments.

On December 12, 2022, BHP collaborated with I-ROX, under which the companies would work together to accelerate the development of I-ROX’s technology and business, and BHP would be offered direct access to this potentially disruptive technology. BHP also made an equity investment in and collaborated with I-Pulse to identify new applications for pulsed-power technology in a mining context.

The collaboration with I-Pulse and I-ROX is expected to enhance BHP’s growing portfolio of options with the potential to improve the competitiveness of its business and help decarbonize it.

BHP’s four-year average dividend yield is 7.84%, and its forward annual dividend of $7 translates to a 10.10% yield. Its dividends have grown at 37.6% and 33.1% CAGRs over the past three and five years, respectively. On September 22, the company paid its shareholders a dividend of $1.75 per share.

For the fiscal year that ended June 30, 2022, BHP’s revenues increased 14.4% to $65.10 billion. Its underlying attributable profit and underlying basic earnings per ordinary share came in at $23.82 billion and $4.71, increasing 39.5% and 39.4% year-over-year, respectively. Also, its underlying EBITDA came in at $40.63 billion, up 15.9% year-over-year.

For the fiscal year 2023 (ending June 30), Street expects BHP’s EPS to increase 5.8% year-over-year to $4.98. Over the past six months, the stock has gained 37.5% to close the last trading session at $67.76.

BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has a B grade for Value, Sentiment, and Quality. Out of 37 stocks in the Industrial - Metals industry, it is ranked first. To see the other ratings of BHP for Growth, Momentum, and Stability, click here.

Centene Corporation (CNC)

CNC is a multinational healthcare company that 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. It operates through the Managed Care and Specialty Services segments.

On January 3, the company’s Health Net of California subsidiary was granted new Medi-Cal direct contracts by the California Department of Health Care Services (DHCS). This should help CNC expand its reach, deliver member-focused care, and improve health outcomes.

"We are pleased to have been issued contracts by DHCS and look forward to pioneering new and innovative approaches to improve access to quality care and drive health equity for the millions of members we serve," said Brian Ternan, Health Net's President and CEO.

On December 5, 2022, CNC announced that it had completed the divestiture of Magellan Rx to Prime Therapeutics LLC. This is expected to help the company focus on its core business and strategic priorities.

For the fiscal third quarter that ended September 30, 2022, CNC’s total revenues increased 10.7% year-over-year to $35.87 billion. The company’s adjusted net earnings increased marginally year-over-year to $755 million. Also, its adjusted EPS increased 3.2% year-over-year to $1.30.

Street expects CNC’s EPS and revenue to increase 11.1% and 14.7% year-over-year to $5.72 and $144.53 billion, respectively, for fiscal 2022 (ended on December 31, 2022). It surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent. Over the past three months, the stock has gained 2.1% to close the last trading session at $76.74.

CNC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

It has a B grade for Value and Quality. Within the A-rated Medical - Health Insurance industry, it is ranked #6 out of 11 stocks. Click here to see the other ratings of CNC for Growth, Momentum, Stability, and Sentiment.

BHP shares were trading at $69.26 per share on Wednesday morning, up $1.50 (+2.21%). Year-to-date, BHP has gained 11.62%, versus a 4.42% rise in the benchmark S&P 500 index during the same period.

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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