The December’s Consumer Price Index (CPI) report indicated that inflation increased by 6.5% over last year while decreasing considerably from its high of 9.1% year-over-year rise in June. This has bolstered hopes that inflation’s grip on the economy will continue to ease this year and possibly require a less aggressive stance by the Federal Reserve to control it.
However, Fed Vice Chair Lael Brainard reiterated, "Inflation is high, and it will take time and resolve to get it back down to 2%. We are determined to stay the course."
Although inflation is predicted to drop further, it will likely remain above the Fed's 2% target, leaving a relatively slim chance of rate cuts anytime soon. Boston Fed President Susan Collins added, "Restoring price stability remains our imperative. Thus, I anticipate the need for further rate increases."
With a pause in interest rates debatable this year, the economy and the stock market are expected to remain under pressure. Large-cap companies generally have a long track record of financial stability and strong performance. They are considered to be safe investments in an uncertain market environment. Moreover, these businesses tend to be resistant to economic headwinds.
Hence, it could be wise for investors to add fundamentally strong large-cap stocks UnitedHealth Group Incorporated (UNH) and VMware, Inc. (VMW) to their portfolios.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare 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 market capitalization of $460.15 billion.
On January 23, 2023, Optum Rx, UNH’s pharmacy services company, launched Price Edge, a tool that seamlessly compares direct-to-consumer pricing for traditional generic drugs with insurance pricing to ensure members always get the lowest prescription drug price. The new tool is expected to benefit the company.
On January 5, Northern Light Health and Optum announced a strategic relationship to enhance the healthcare experience throughout Maine. This collaboration is expected to increase administrative efficiency and advance innovative technology to help serve patients more effectively.
On November 16, 2022, UNH and Life Time Group Holdings, Inc. (LTH) announced an expansion of their relationship to include access to all Life Time locations, helping even more people stay active and improve their physical and mental well-being. This should help UNH deliver additional value to its customers, thereby expanding its market share.
The company pays an annual dividend of $6.60, which translates to a yield of 1.34% at the current price level. Its four-year average dividend yield is 1.36%. Moreover, its dividend payouts have increased for 13 consecutive years and at a 17.4% CAGR over the past five years. On December 13, 2022, UNH paid its quarterly cash dividend of $1.65 per share.
UNH’s net revenues increased 12.3% year-over-year to $82.79 billion in the fourth quarter that ended December 31, 2022. Adjusted net earnings attributable to UNH increased 18.1% from the year-ago value to $5.06 billion, while its earnings from operations grew 24.4% year-over-year to $6.89 billion. UNH’s adjusted EPS rose 19.2% from the prior-year quarter to $5.34.
For the fiscal first quarter (ending March 31, 2022), UNH’s revenue is expected to increase 12% year-over-year to $89.77 billion. Its EPS for the current quarter is expected to increase by 10.7% to $6.07. The stock surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Shares of UNH have gained 7.4% over the past year to close its last trading session at $492.48.
UNH’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which translates to a Strong 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 Growth, Stability, Sentiment, and Quality. Out of 11 stocks in the A-rated Medical - Health Insurance industry, it is ranked #5. To see the additional ratings of UNH for Value and Momentum, click here.
VMware, Inc. (VMW)
With a market capitalization of $53.76 billion, VMW is a software provider in hybrid and multi-cloud, modern applications, networking, security, and digital workspaces. It has strategic alliances with Amazon Web Services to build and deliver an integrated hybrid solution. In addition, it sells its products through distributors, resellers, system vendors, and systems integrators.
On January 26, 2023, the company announced that Antel, the leading Mobile Operator in Uruguay, had chosen VMW to trial its Telco Cloud Platform for their 5G Architecture. This reflects the growing demand for VMW's services and the company's vast market reach.
“To help with the rollout of 5G networks, VMware offers service providers a single platform to modernize their network infrastructure efficiently and cost effectively. VMware is proud to be an existing partner of Antel, and we look forward to helping them successfully trial the VMware Telco Cloud Platform,” said Sanjay Uppal, VMW’s senior vice president and general manager, Service Provider and Edge.
On November 8, 2022, VMW and Hewlett Packard Enterprise (HPE) announced the next stage of collaboration with HPE GreenLake, bringing together HPE GreenLake and VMware Cloud to create a fully integrated solution with a straightforward pay-as-you-go hybrid cloud consumption model. This should be strategically beneficial for the companies.
VMW’s total revenues increased marginally year-over-year to $3.21 billion for the third quarter that ended October 28, 2022. Its Subscription and SaaS revenue increased 20.5% year-over-year to $988 million. Also, its long-term debt came in at $9.69 billion for the period ended October 28, 2022, compared to $12.67 billion for the period ended January 28, 2022.
Street expects VMW’s EPS and revenues to increase 22% and 5.8% year-over-year to $1.56 and $3.27 billion, respectively, in the fiscal first quarter (ending April 30, 2023). Over the past nine months, the stock has gained 18.1% year-over-year to close the last trading session at $126.37.
VMW POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Stability. In the Software - Business industry, it is ranked #8 of 52 stocks. Click here to see the other ratings of VMW for Growth, Momentum, and Sentiment.
UNH shares were trading at $488.33 per share on Friday afternoon, down $4.15 (-0.84%). Year-to-date, UNH has declined -7.89%, versus a 6.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
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.
2 Large-Cap Stocks to Buy Before the End of January StockNews.com
