3 Stocks That Thrive During Economic Uncertainty

As inflation cooled considerably in October and November 2022, the Federal Reserve slightly eased its monetary policy tightening by raising its benchmark interest rate by 50 basis points in December. However, the Fed officials indicated plans to keep raising rates through 2023, with no reductions until 2024, and expect the “terminal rate” at 5.1%.

Lingering inflation, higher interest rates, energy market disruptions, and supply chain setbacks have made several economists and market participants fearful that the U.S. is headed for a recession this year. The International Monetary Fund (IMF) projects global growth to be at 2.7% this year, slowing from 3.2% in 2022. In addition, Kristalina Georgieva, IMF chief, warned that one-third of the world economy is expected to be in recession in 2023.

Greg McBride, the chief financial analyst at Bankrate, said, “Two-in-three economists are forecasting a recession in 2023, yet corporate earnings estimates haven’t come down to reflect that.” He added, “If the economy continues to slow and quarterly earnings calls in January reveal a dour outlook for the year, corporate earnings estimates will be marked down, and the market could have a renewed tumble.”

With the Federal Reserve set to continue raising interest rates and the U.S. economy likely to tip into a much-expected recession, investors are sitting on a lot of uncertainty. The market could remain volatile in the near term.

Given this backdrop, investors could invest in fundamentally strong stocks, PepsiCo, Inc. (PEP), Humana Inc. (HUM), and Sysco Corporation (SYY), that have the potential to thrive during economic uncertainty and shield their portfolio from a looming recession.

PepsiCo, Inc. (PEP)

PEP is a global food and beverage giant with a broad portfolio of soft drinks. The company’s segments include Frito-Lay North America, Quaker Foods North America, and PepsiCo Beverages North America. Its offerings include branded dips, cheese-flavored snacks, tortillas, and dairy products.

On December 5, 2022, announced a new packaging goal intended to double down the scale of reusable packing models from 10% to 20% by 2030. This ambition is driven by disruptive innovation that aligns perfectly with the company’s sustainable packaging vision.

On November 17, 2022, the company’s Board of Directors increased its quarterly dividend by 7% from the prior-year value to $1.15 per share, payable on January 6, 2023. PEP has the longest streak of increasing annual dividends for 50 consecutive years; this reflects its strong cash flows.

PEP’s four-year average dividend yield is 2.78%, and its forward annual dividend of $4.60 translates to a 2.55% yield. Its dividend has grown at a 6.1% CAGR over the past three years and a 7.4% CAGR over the past five years.

PEP’s net revenue increased 8.8% year-over-year to $21.97 billion for the third quarter that ended September 3, 2022. The company’s gross profit increased 8% year-over-year to $11.66 billion, while its non-GAAP operating profit rose 10.9% from the year-ago value to $3.59 billion. In addition, its non-GAAP net income increased 10.1% year-over-year to $2.73 billion. Also, its non-GAAP EPS came in at $1.97, up 10.1% year-over-year.

The consensus EPS estimate of $1.64 for the fourth quarter ended December 31, 2022, represents a 7.2% improvement year-over-year. The consensus revenue estimate of $26.59 billion for the last quarter indicates a 5.3% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

Over the past three months, the stock has gained 10.7% to close the last trading session at $180.66.

PEP’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to a 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 an A grade for Quality and a B for Growth and Stability. Out of 35 stocks in the A-rated Beverages industry, it is ranked #11. Click here to see the other ratings of PEP for Value, Momentum, and Sentiment.

Humana Inc. (HUM)

HUM operates as a health and well-being company through three segments: Retail, Group and Specialty, and Healthcare Services. The company offers medical and supplemental benefit plans to individuals. It also provides insured medical and specialty health insurance benefits and pharmacy solutions.

On December 22, 2022, HUM announced that Humana Military had been awarded the next managed care support contract for the TRICARE East Region by the Defense Health Agency of the U.S. Department of Defense (DoD) to provide benefits to military service members, retirees, and their families. This marks the sixth TRICARE contract it has secured since 1996, reflecting strong demand over its peers.

On October 7, 2022, HUM announced that its Kentucky HMO plan had received the prestigious 5-star rating from the Centers for Medicare and Medicaid Services (CMS) for the second year in a row. This achievement reflects the company’s strong collaboration with local health providers and strong dedication to delivering the best health outcomes for its members.

HUM’s four-year average dividend yield is 0.65%, and its forward annual dividend of $3.16 translates to a 0.62% yield. Its dividend has grown at a 12.7% CAGR over the past three years and a 14.5% CAGR over the past five years.

In the third quarter ended September 30, 2022, HUM’s total revenue increased 10.2% year-over-year to $22.80 billion. Its non-GAAP pre-tax income increased 42.5% from the year-ago value to $1.14 million, while its non-GAAP EPS came in at $6.88, representing a 42.4% year-over-year improvement.

The consensus EPS estimate of $1.50 for the fiscal fourth quarter (ended December 31, 2022) represents a 21.2% improvement year-over-year. The consensus revenue estimate of $22.44 billion for the previous quarter represents a 6.6% increase from the same period last year. HUM surpassed the EPS estimates in each of the trailing four quarters, which is excellent.

The stock has gained 16.6% over the past nine months to close the last trading session at $512.19.

HUM’s strong fundamentals are reflected in its POWR ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, and Quality. The stock is ranked #3 of 11 in the A-rated Medical - Health Insurance industry.

Click here to see the other HUM ratings for Momentum, Stability, and Sentiment.

Sysco Corporation (SYY)

SYY distributes food and related products primarily to the food service or food-away-from-home industry. It operates through four segments: U.S. Foodservice; International Foodservice; SYGMA; and Other. The company serves restaurants, healthcare, educational facilities, lodging establishments, and other customers who prepare meals away from home.

On December 7, 2022, SYY announced the launch of its 10th professional truck driver training facility since March 2022. The company now operates Commercial Driver’s License (CDL) training facilities at Sysco sites throughout the United States. This industry-leading program should help increase the number of qualified drivers at the company’s disposal, bolstering its robust supply chain.

On November 11, 2022, the company received its first series-produced battery electric Freightliner eCascadia. Earlier this year, SYY and DTNA, the leading North American heavy-duty truck manufacturer, announced plans to deploy up to 800 battery electric Freightliner eCascadias by 2026. 

The deployment of Freightliner eCascadias, along with electric refrigerated trailers, should strengthen SYY’s role in transforming the future of food service delivery.

SYY pays a $1.96 per share dividend annually, which translates to a 2.56% yield on the current price. Its dividend payouts have increased at a 7.2% CAGR over the past three years and a 7.8% CAGR over the past five years. The company has a record of 7 consecutive years of dividend growth.

 On November 17, 2022, SYY declared a quarterly dividend of $0.49 per share to its shareholders, payable on January 27, 2023.

In the fiscal first quarter ended October 1, 2022, SYY’s net sales increased 16.2% year-over-year to $19.13 billion. Its non-GAAP operating income increased 12.4% from the year-ago value to $770.27 million, while its non-GAAP net earnings grew 14.6% year-over-year to $492.60 million.

The company’s EPS came in at $0.97, representing a 16.9% year-over-year improvement. Also, its adjusted EBITDA increased 7.5% from the prior-year quarter to $916.87 million.

Analysts expect SYY’s EPS and revenue to increase 44.3% and 14.1% year-over-year to $0.82 and $18.62 billion for the second quarter, which ended December 31, 2022. Over the past three months, the stock has gained 8.1% to close the last trading session at $76.45.

SYY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. Also, it has an A grade for Growth and a B for Value and Stability. Within the B-rated Food Makers industry, it is ranked #7 of 83 stocks.

Beyond what we’ve stated above, we have also given SYY grades for Momentum, Sentiment, and Quality. Get all SYY ratings here.

PEP shares were trading at $177.45 per share on Tuesday morning, down $3.21 (-1.78%). Year-to-date, PEP has declined -1.78%, versus a -0.90% 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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