In light of recent upbeat economic data, Fed chair Jerome Powell opened the door to larger interest rate hikes. With renewed recession fears due to expectations of a more aggressive tightening, the stock market is expected to remain volatile in the near term. Hence, investors could consider buying powerhouse stocks Johnson & Johnson (JNJ), Humana (HUM), and AutoZone (AZO), which have promising prospects.
Fed chairman Jerome Powell recently cautioned lawmakers that the central bank will likely raise interest rates higher than it previously expected in response to recent strong economic data and is prepared to return to a quicker pace of rate hikes if incoming data remains hot.
Following Powell’s hawkish testimony, Goldman Sachs (GS) economists increased their forecast for peak Fed rates to 5.5-5.75%. “We expect the data ahead of the March meeting to be mixed but firm on net, and we therefore see our standing forecast of a 25-basis-point hike in March as a close call, with some risk that the FOMC could hike by 50 basis points instead,” the economists led by Jan Hatzius wrote in a note to clients.
Moreover, Citigroup Inc. (C) economists expect the Fed to increase its benchmark rate by 50 basis points at the March meeting.
Furthermore, according to Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, the Fed could increase rates to 6% and keep them higher for an extended period of time to fight stubborn inflation. Expectations of more aggressive action by the Fed revived recession fears, crushing the riskier corners of the stock market.
Amid an uncertain macroeconomic backdrop, investing in shares of high-quality businesses well-positioned for long-term growth could be wise. Let’s discuss what could help JNJ, HUM, and AZO survive the near-term headwinds and emerge as long-term winners.
Johnson & Johnson (JNJ)
JNJ researches, develops, produces, and markets a diverse range of healthcare products worldwide. The company operates through three segments, Consumer Health; Pharmaceutical; and MedTech. Its major emphasis is on human health and well-being products.
On December 22, 2022, JNJ completed the acquisition of Abiomed, Inc (ABMD). JNJ’s CEO, Joaquin Duato, said, “This acquisition marks another important step on Johnson & Johnson’s path to accelerating growth in our MedTech business and delivering innovative medical technologies to more people around the world.”
JNJ’s U.S. sales grew 2.9% year-over-year to $12.52 billion for the fiscal fourth quarter that ended December 31, 2022. Its adjusted earnings before the provision for taxes on income grew 17% from the year-ago value to $7.42 billion. Also, the company’s adjusted net earnings and EPS rose 9.5% and 10.3% year-over-year to $6.22 billion and $2.35, respectively.
JNJ has a record of increasing its dividends for 60 consecutive years. It pays a $4.52 per share dividend annually, translating to a 2.96% yield on the current price level. The company’s four-year average dividend yield is 2.60%, and its dividend payments have grown at 6.1% CAGR over the past five years.
Analysts expect JNJ’s revenue to increase 2.8% year-over-year to $97.62 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to rise 3.6% from the previous year to $10.51. Moreover, JNJ surpassed its consensus EPS estimates in all four trailing quarters, which is impressive.
Furthermore, JNJ’s revenue and EPS for fiscal 2024 are expected to grow 2.6% and 4.1% from the prior year to $100.20 billion and $10.94, respectively. The stock declined 8.1% to close the last trading session at $151.24.
JNJ’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
JNJ has an A grade for Stability and a B for Sentiment, Value, and Quality. It is ranked #6 in the 169-stock Medical – Pharmaceuticals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see JNJ’s ratings for Growth and Momentum here.
Humana Inc. (HUM)
HUM operates as a health and well-being company in the United States. It operates through two segments: Insurance and CenterWell. The company provides medical and supplemental benefit plans to individuals. Also, it offers pharmacy solutions, provider services, and home solutions services to its health plan members and third parties.
On March 2, 2023, HUM and Aledade, the nation’s largest network of independent primary care, announced a 10-year collaboration to provide value-based primary care for Humana’s Medicare Advantage members from in-network Aledade-enabled physicians.
George Renaudin, HUM’s President of Medicare and Medicaid, said, “Aledade was one of the largest value-based care providers for Humana in 2022, and our relationship will continue our goal to improve access to proactive screenings to identify and treat illnesses early. With an increased focus on value-based care, our entire health care system can see the results through higher-quality care and lower health care costs.”
On February 16, HUM announced that its Board of Directors declared a cash dividend to stockholders of $0.885 per share, payable on April 28, 2023. The dividend of $0.885 per share reflects an increase of 12.4% from the previous dividend of $0.7875 per share.
HUM’s current dividend translates to a 0.72% yield annually, while its four-year average dividend yield is 0.65%. Over the last five years, its dividend payouts have grown at a 14.5% CAGR. The company has raised its dividend for six consecutive years.
HUM’s adjusted revenues increased 6.6% year-over-year to $22.44 billion for the fourth quarter that ended December 31, 2022. Its adjusted pretax results were $263 million, up 58.4% year-over-year. The company adjusted EPS grew 30.7% year-over-year to $1.62. Also, its adjusted operating cash inflows were $651 million, compared to operating cash outflows of $96 million in the prior-year quarter.
Analysts expect HUM’s revenue and EPS for fiscal 2023 to increase 11.9% and 11.4% year-over-year to $103.91 billion and $28.12, respectively. The company’s revenue and EPS for fiscal 2024 are estimated to grow 8.7% and 13.6% year-over-year to $112.95 billion and $31.95, respectively. It topped the consensus EPS estimates in all four trailing quarters.
Shares of HUM have gained 13.3% over the past year to close the last trading session at $486.33.
HUM’s bright outlook is reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
HUM has a B grade for Growth, Value, and Sentiment. It is ranked #4 of 10 stocks in the A-rated Medical – Health Insurance industry. Click here for the additional POWR Ratings for Stability, Momentum, and Quality for HUM.
AutoZone, Inc. (AZO)
AZO retails and distributes automotive replacement parts and accessories. The company’s products include A/C compressors, batteries and accessories, belts and hoses, bearings, calipers, clutches, engines, fuel pumps, ignition and lighting products, radiators, thermostats, and water pumps. It has stores in the United States, Mexico, and Brazil.
On February 28, 2023, Bill Rhode, AZO’s Chairman, President, and CEO, said, “For the remainder of fiscal 2023, we will be laser focused on relentless execution, and we will continue to focus our capital on projects that meet or exceed our return on capital targets. We will take nothing for granted as we will continue to focus on our long-term approach of increasing operating earnings and free cash flows while using our balance sheet effectively.”
For the fiscal second quarter that ended February 11, 2023, AZO’s net sales increased 9.5% year-over-year to $3.69 billion, while its gross profit grew 8.1% from the year-ago value to $1.93 billion. The company’s operating profit was $669.98 million, up 6.9% year-over-year. Its net income rose 1% year-over-year to $476.54 million, and its net income per share was $24.64, up 10.5% year-over-year.
AZO’s revenue and EPS for the current fiscal year (ending August 2023) are expected to grow 7.5% and 9.9% from the previous year to $17.48 billion and $128.79, respectively. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
In addition, analysts expect the company’s revenue and EPS to increase 5.2% and 13.3% from the previous year to $18.38 billion and $145.95, respectively. The stock has gained 10.2% over the past six months and 28.5% over the past year to close the last trading session at $2,422.19.
AZO’s POWR Ratings reflect a promising outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
AZO has an A grade for Quality and a B for Growth and Sentiment. Among 60 stocks in the A-rated Auto Parts industry, it is ranked #20.
Click here to access additional ratings of AZO for Value, Momentum, and Stability.
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JNJ shares rose $0.06 (+0.04%) in premarket trading Friday. Year-to-date, JNJ has declined -13.77%, versus a 2.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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