The possibility of aggressive interest rate hikes later this year to combat high inflation, deepening supply chain constraints, and further Western sanctions on Russia have led the stock market to another selloff. All three major benchmark stock indexes declined over the past five days.
However, an improving job market indicates a steady economic recovery this year. Therefore, investors seeking to hedge their portfolios against short-term market fluctuations could invest in mega-cap stocks because they typically deliver steady returns irrespective of the market conditions.
Fundamentally-sound mega-cap stocks UnitedHealth Group Incorporated (UNH) and Walmart Inc. (WMT), which are currently trading at discounts to their peers, could be ideal bets. However, given the market's immense volatility, overvalued mega-cap stocks Amazon.com, Inc. (AMZN) and JPMorgan Chase & Co. (JPM) will likely remain under pressure in the near term. So, these stocks are best avoided now.
Stocks to Buy:
UnitedHealth Group Incorporated (UNH)
With a $487.16 billion market capitalization, UNH in Minnetonka, Minn., is a diversified health care and insurance company that offers a broad spectrum of products and services through UnitedHealthcare and Optum platforms. The company provides employers with products and resources to plan and administer employee benefit programs. It has a 0.88 beta.
On April 5, 2022, UNH’s leading information and technology-enabled health services business, Optum, and Change Healthcare (CHNG), a revenue and payment cycle management provider that connects payers, healthcare providers, and patients, agreed to extend their merger agreement to Dec. 31, 2022. This should allow companies to improve healthcare by simplifying the core clinical, administrative, and payment processes healthcare providers and payers depend on to serve patients.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, UNH’s total revenues increased 83.1% year-over-year to $73.74 billion. The company’s earnings from operations came in at $5.54 billion, up 57.6% from the year-ago period. While its adjusted net income increased 76.8% year-over-year to $4.28 billion, its adjusted EPS increased 77.8% to $4.48. As of Dec. 31, 2021, the company had $21.38 billion in cash and cash equivalents.
Analysts expect UNH’s EPS to improve 13.6% year-over-year to $21.60 for its fiscal year 2022 ending Dec. 31, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $11.10 billion consensus revenue estimate for the same fiscal year indicates an 11.1% year-over-year improvement. The company’s EPS is expected to grow at a 14.6% rate per annum over the next five years.
In terms of forward non-GAAP PEG, UNH is currently trading at 1.69x, which is 10.5% lower than the 1.89x industry average. In terms of forward Price/Sales, UNH is currently trading at 1.50x, which is 72.5% lower than the 5.47x industry average.
Over the past three months, the stock has gained 3.9% in price and closed yesterday’s trading session at $517.76. UNH’s trailing-12-month ROE, ROA, and net income margin are 24.1%, 7.3%, and 6%, respectively.
UNH’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Stability, and Quality. Click here to see the additional ratings for UNH’s Value, Momentum, and Sentiment.
UNH is ranked #2 of 11 stocks in the B-rated Medical - Health Insurance industry.
Walmart Inc. (WMT)
With a market cap of $416.81 billion, WMT in Bentonville, Ark., operates retail, wholesale, supermarkets, other units, and e-commerce websites worldwide. The company operates through Walmart U.S.; Walmart International; and Sam’s Club. In addition, it offers fuel and financial services and related products. It has a 0.55 beta.
On March 7, 2022, WMT and Space NK, a British retailer of personal care and beauty products, announced a collaboration called BEAUTYSPACENK to bring prestige beauty products to Walmart.com and Walmart stores nationwide this summer. The collaboration leverages WMT’s size and scales with Space NK’s assortment of high-quality beauty brands and products. By offering a wide variety of price points across skincare, makeup, haircare and bath, and body, WMT should witness high demand for Space NK in the coming months.
For its fiscal year 2022 fourth quarter, ended Jan. 31, 2022, WMT’s total revenues increased marginally from the prior-year period to $152.87 billion. The company’s adjusted operating income came in at $6 billion, indicating a 5.9% rise from the year-ago period. WMT’s net income was $3.56 billion, compared to a $2.09 billion net loss in the prior-year period. Its adjusted EPS increased 10.1% year-over-year to $1.53. The company had $14.76 billion in cash and cash equivalents as of Jan. 31, 2022.
The $6.76 consensus EPS estimate for its fiscal year 2023, ending Jan. 31, 2023, represents a 4.6% year-over-year improvement. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect WMT’s revenue to improve 3.2% year-over-year to $590.86 billion for the same fiscal year. The company’s EPS is expected to grow at an 8.4% rate per annum over the next five years.
The company has a 2.68x non-GAAP forward PEG, which is 5.5% lower than the 2.83x industry average. In terms of forward Price/Sales, WMT is currently trading at 0.71x, which is 44.1% lower than the1.26x industry average.
WMT stock has gained 6.4% in price over the past three months and ended yesterday’s trading session at $151.47. The stock’s trailing-12-month ROE, ROA, and net income margin have been 15.5%, 6.5%, and 2.4%, respectively.
WMT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. Click here to see the additional ratings for WMT’s Momentum.
WMT is ranked #5 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
Stocks to Avoid:
Amazon.com, Inc. (AMZN)
With a market capitalization of $1.67 trillion, AMZN is a multinational technology company that is an online retailer of consumer products and subscriptions, and operator of Amazon Web Services (AWS), one of the biggest cloud platforms in the digital computing space. The Seattle, Wash., company offers storage, database, analytics, machine learning, fulfillment, advertising, publishing, and digital content subscriptions. It also offers personalized shopping services, web-based credit card payment, and direct shipping. It has a 1.12 beta.
On April 6, 2022, AMZN’s Amazon Web Services, Inc. (AWS) company, and prominent aerospace company The Boeing Company (BA) announced an expanded relationship to extend BA’s existing cloud operations and streamline its approach to cloud computing. BA will migrate applications out of on-premises data centers to AWS and create a technology foundation that will strengthen engineering and manufacturing processes. Beyond the cloud relationship, AMZN’s Amazon Air has grown its fleet to more than 110 Boeing aircraft to facilitate the movement of goods to Amazon customers worldwide. This should nurture AMZN’s long-term partnership with BA.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, AMZN’s operating income came in at $3.46 billion, representing a 49.7% year-over-year decline. The company had $36.22 billion in cash and cash equivalents as of Dec. 31, 2021, down 14% from the end of fiscal 2020.
Analysts expect the company’s EPS to decline 24.9% year-over-year to $48.67 in its fiscal year 2022, ending Dec. 31, 2022. AMZN’s 3.17x forward Price/Sales is 243% higher than the 0.92x industry average. In terms of forward Price/Book, AMZN is currently trading at 9.80x, which is 271.3% higher than the 2.64x industry average.
AMZN stock has gained 0.5% in price over the past three months and ended yesterday’s trading session at $3,281.10. The stock’s trailing-12-month ROE, ROA, and net income margin have been 28.8%, 4.2%, and 7.1%, respectively.
AMZN’s POWR Ratings reflect this bleak outlook. The stock has an overall C rating, which equates to a Neutral in our proprietary rating system.
AMZN has a B grade for Sentiment and Quality. Click here to see the additional ratings for AMZN’s Value, Stability, Momentum, and Growth.
Among the 71 stocks in the F-rated Internet industry, AMZN is ranked #26.
JPMorgan Chase & Co. (JPM)
With a market capitalization of $393.73 billion, JPM in New York City provides financial services and retail banking to business enterprises, institutions, and individuals worldwide. The company operates through four segments: Consumer & Community Banking (CCB); Corporate & Investment Bank (CIB); Commercial Banking (CB); and Asset & Wealth Management (AWM). It also provides ATMs, online and mobile, and telephone banking services. It has a 1.09 beta.
On March 15, 2022, JPM agreed to acquire Global Shares, a leading cloud-based share plan management software provider. The acquisition of this fintech company should help JPM move from new client acquisition for its Global Private Bank and U.S. Wealth Management businesses to providing new, innovative capabilities to private and public companies globally and helping their employees manage their wealth.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, JPM’s total net revenue decreased marginally year-over-year to $29.26 billion. The company’s net income came in at $10.40 billion for the quarter, representing a 14.3% decrease from the prior-year period. Its EPS decreased 12.1% year-over-year to $3.33.
Analysts expect the company’s EPS to be $11.06 for its fiscal year 2022, ending Dec. 31, 2022, representing a 28% decline from the prior-year period. The $124.57 billion consensus revenue estimate for the same fiscal year represents a 0.6% year-over-year decline.
JPM’s 3.25x forward Price/Sales is 3.5% higher than the 3.14x industry average. In terms of forward Price/Book, JPM is currently trading at 1.47x, which is 29.8% higher than the 1.13x industry average.
JPM stock has declined 19% over the past three months and ended yesterday’s trading session at $131.74. The stock’s trailing-12-month ROE, ROA, and net income margin have been 16.9%, 1.4%, and 36.9%, respectively.
JPM’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, which equates to Neutral in our proprietary rating system.
JPM has an F grade for Growth and a C grade for Value, Stability, Quality, and Sentiment. Click here to see additional ratings for JPM’s Momentum.
JPM is ranked #5 of 10 stocks in the F-rated Money Center Banks industry.
UNH shares were trading at $530.69 per share on Wednesday afternoon, up $12.93 (+2.50%). Year-to-date, UNH has gained 6.00%, versus a -5.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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