After a year filled with macroeconomic and geopolitical challenges, the stock market appeared to have stabilized at the beginning of the year. However, the market has turned volatile again on concerns over the Fed continuing with the interest rate hikes. Despite the recession fears, I think The Coca-Cola Company (KO), Centene Corporation (CNC), and American Vanguard Corporation (AVD) are among the top-tier stocks to invest in if you have as much as $200.
Before analyzing the fundamentals of these stocks to justify why they could generate solid returns, let’s discuss what could keep the market volatile in the months ahead.
Although inflation fell for the seventh straight month annually in January, the Personal Consumption Expenditure (PCE) increased 0.6% for the month and 4.7% year-over-year. The central bank closely tracks the PCE to gauge inflation, and the rise in PCE is worrying as it implies that the Fed still has some work to do to bring inflation down.
In its semiannual Monetary Policy Report to Congress published last Friday, the Federal Reserve assured that it was committed to keeping interest rates elevated to bring inflation down. The monetary policy report stated, “The Federal Reserve is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials. The committee is strongly committed to returning inflation to its 2 percent objective.”
Moreover, the jobs market is expected to remain tight as the February jobs report will likely show that 200,000 jobs were created last month, and the unemployment rate is expected to remain at 3.4%. This will likely push the Fed into action, with the fed funds rate expected to surpass the 5% mark this year.
Let’s see how KO, CNC, and AVD are positioned to survive the expected market volatility in the upcoming months.
The Coca-Cola Company (KO)
Famous beverage company KO is engaged in manufacturing, marketing, and selling various non-alcoholic beverages worldwide. It provides sparkling soft drinks, enhanced water, juice, dairy, and syrups. In addition, it sells products under Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero Sugar, and Fanta brands.
KO paid a dividend of 46 cents to shareholders on April 3, 2023. It has increased its dividend for 62 consecutive years. Its annual dividend of $1.84 yields 3.10% on the current share price. The company’s dividend payouts have increased at a 3.2% CAGR over the past three years and a 3.5% CAGR over the past five years.
In terms of the trailing-12-month gross profit margin, KO’s 58.14% is 82.3% higher than the 31.89% industry average. Likewise, its 31.42% trailing-12-month EBITDA margin is 174.2% higher than the industry average of 11.46%. Furthermore, the stock’s 3.45% trailing-12-month Capex/Sales is 8.3% higher than the industry average of 3.19%.
KO’s non-GAAP net operating revenues increased 7.7% year-over-year to $10.20 billion for the fourth quarter ended December 31, 2022. Its non-GAAP gross profit increased 6% year-over-year to $5.76 billion. The company’s non-GAAP operating income increased 10.9% from the prior-year quarter to $2.32 billion. Its non-GAAP net income and non-GAAP EPS came in at $1.94 billion and $0.45, respectively.
Analysts expect KO’s revenue and EPS for the quarter ending March 31, 2023, to increase 2.9% and 0.8% year-over-year to $10.81 billion and $0.65, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 0.7% to close the last trading session at $59.44.
KO’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability, Sentiment, and Quality. It is ranked #17 out of 37 stocks within the A-rated Beverages industry. Click here to see the other ratings of KO for Growth, Value, and Momentum.
Centene Corporation (CNC)
CNC operates as a multi-national healthcare enterprise that provides programs and services to underinsured and uninsured individuals. It operates through two segments, Managed Care and Specialty Services.
On January 23, 2023, CNC announced that it had completed the divestiture of Magellan Specialty Health to Evolent Health, Inc. CNC’s CEO Sarah London said, “We are pleased to reach another significant milestone in our ongoing portfolio review and value creation plan.”
“With the close of this transaction, we look forward to launching our national strategic partnership with Evolent and expanding our relationship with Magellan Specialty Health to ensure our members and providers have access to a broad and integrated portfolio of value-based specialty solutions,” he added.
In terms of the trailing-12-month levered FCF margin, CNC’s 2.45% compares to the negative 3.99% industry average. Likewise, its 4.36% trailing-12-month EBITDA margin is 22.4% higher than the industry average of 3.56%. Furthermore, the stock’s 1.75x trailing-12-month asset turnover ratio is 415.6% higher than the industry average of 0.34x.
CNC’s total revenues increased 14.7% year-over-year to $144.55 billion for the fiscal year ended December 31, 2022. The company’s adjusted net earnings rose 10.6% year-over-year to $3.36 billion. Its net cash provided by operating activities increased 48.9% year-over-year to $6.26 billion. In addition, its adjusted EPS came in at $5.78, representing a 12.2% increase from the prior-year quarter.
Analysts expect CNC’s EPS for the quarter ending March 31, 2023, to increase 9.6% year-over-year to $2.01. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 2.7% to close the last trading session at $69.07.
It is no surprise that CNC has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. Within the A-rated Medical - Health Insurance industry, it is ranked #3 out of 10 stocks. The company has a B grade for Value and Quality.
Click here to see the additional ratings of CNC for Growth, Momentum, Stability, and Sentiment.
American Vanguard Corporation (AVD)
AVD develops, produces, and markets specialty chemicals for agricultural, commercial, and consumer purposes in the United States and globally through its subsidiaries. It sells its products through national distribution corporations, buying groups or co-operatives, sales offices, salesforce executives, sales agents, and wholly-owned distributors.
On January 17, 2023, AVD’s subsidiary AMVAC Chemical Corporation’s specialty markets division AMGUARD Environmental Technologies announced the acquisition of the product and trademark assets of American Bio-Systems.
AMGUARD CEO Shayne M. Wetherall said, “BioMop-Plus and Draingel are a great fit with AMGUARD’s portfolio and our strategy to provide compelling biological solutions to the commercial pest control industry. These formulations directly address the foodservice industry’s desire for labor-saving solutions, including the improvement of sanitation practices that currently use standard soap-based and chemical cleaning products that can only ‘break up’ food waste and grease build-up, not remove it.”
Over the last three years, AVD’s dividend payouts have grown at a 9.5% CAGR, while its five-year dividend payouts have increased at a CAGR of 11.8%. Its four-year average dividend yield is 0.44%, and its forward annual dividend of $0.12 per share translates to a 0.56% yield. The company paid a quarterly dividend of $0.03 per share on January 11, 2023.
In terms of the trailing-12-month levered gross profit margin, AVD’s 39.65% is 33.2% higher than the 29.76% industry average. Likewise, its 5.28% trailing-12-month levered FCF margin is 13.5% higher than the industry average of 4.65%. Furthermore, the stock’s 0.80x trailing-12-month asset turnover ratio is 5.5% higher than the industry average of 0.76x.
For the fiscal third quarter ended September 30, 2022, AVD’s net sales increased 3.3% year-over-year to $152.12 million. Its gross profit rose 7.6% from the year-ago period to $61.38 million. The company’s operating income increased 25.7% year-over-year to $11.24 million. Also, its adjusted EBITDA increased 11.4% from the prior-year period to $18.91 million.
In addition, its net income increased 22.6% year-over-year to $6.74 million. Its EPS came in at $0.23, representing an increase of 27.8% year-over-year.
Analysts expect AVD’s EPS for fiscal 2022 to increase 41.8% year-over-year to $0.87. Its revenue for the quarter ending March 31, 2023, is expected to increase 4.9% year-over-year to $156.70 million. Over the past six months, the stock has gained 9.5% to close the last trading session at $21.30.
It’s no surprise that AVD has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. Within the B-rated Chemicals industry, it is ranked #2 out of 84 stocks.
It has a B grade for Value, Stability, Sentiment, and Quality. Click here to see the other ratings of AVD for Growth and Momentum.
What To Do Next?
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KO shares fell $0.13 (-0.22%) in premarket trading Monday. Year-to-date, KO has declined -6.63%, versus a 5.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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