The stock market has had a rough year amid concerns over the Fed’s persistent hawkish stance to tame record-high inflation, geopolitical issues, and a potential economic slowdown. However, it made a huge comeback in October, with all major benchmark indices snapping a two-month losing streak. The S&P 500 gained 1.72%, while Dow Jones climbed 7.7% over the past month.
Furthermore, the economy posted its first expansion of 2022 in the third quarter, temporarily easing recession fears. Gross Domestic Product (GDP) accelerated at a 2.6% annualized pace, beating the estimated 2.3%. The increase in GDP came primarily from rising consumer spending, non-residential fixed investment, and government spending.
According to Morgan Stanley Chief US Equity Strategist Mike Wilson, equity markets will likely rally in early 2023. “We think ultimately the bear market will be over probably sometime in the first quarter,” Wilson said. He also sees S&P 500 rallying to 4,150 points before “reality sets in.”
Regardless of the market conditions, it could be wise to invest in fundamentally sound stocks Costco Wholesale Corporation (COST) and Energy Transfer LP (ET), which are well-positioned to sail smoothly in the following year.
Costco Wholesale Corporation (COST)
COST operates membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. The company provides branded and private-label products in a range of merchandise categories. It operates more than 838 membership warehouses around the globe.
On October 13, COST’s Board of Directors declared a quarterly cash dividend on the common stock of 90 cents per share, payable on November 10, 2022. The company pays $3.60 annually as a dividend, representing a yield of 0.72% at the current share price. Its 4-year average dividend yield is 1.44%.
COST’s dividend payouts have grown at a CAGR of 11.5% over the past three years and 12.4% over the past five years. Moreover, the company has increased its dividends over the past 18 years.
On June 30, COST completed a purchase for $1.05 billion by a wholly owned subsidiary of the 45% minority interest in its joint venture, Costco-Taiwan. The company now indirectly owns all of Costco Taiwan. It is estimated that the purchase would be approximately one to one and one-half percent accretive to earnings per share.
In the fiscal 2022 fourth quarter ended August 28, 2022, COST's total revenues increased 15% year-over-year to $72.09 billion. Its operating income grew 9.8% from the prior-year period to $2.50 billion. The company’s income before income taxes rose 9.8% year-over-year to $2.52 billion.
In addition, the company's net income and income per common share attributable to Costco came in at $1.89 billion and $4.20, up 11.9% and 11.7% year-over-year, respectively.
Analysts expect COST’s revenue and EPS of $245.43 billion and $14.65 for fiscal 2023 (ending August 2023), indicating a rise of 8.1% and 10.4% year-over-year, respectively. Furthermore, the company’s revenue and EPS for the next fiscal year are expected to grow 7% and 11.3% year-over-year to $262.59 billion and $16.31, respectively.
The stock has gained 6.2% over the past month to close the last trading session at $499.96.
COST’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
COST has a grade of B for Sentiment and Growth. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #28 out of 38 stocks.
Beyond what is stated above, we’ve also rated COST for Momentum, Value, Stability, and Quality. Get all COST ratings here.
Energy Transfer LP (ET)
ET provides energy-related services. It sells natural gas to electric utilities, independent power plants, local distribution, and industrial end-users. It owns and operates more than 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities in Texas and Oklahoma, and 19,830 miles of interstate natural gas pipeline.
On October 26, ET announced a quarterly cash distribution of $0.265 per common unit ($1.06 on an annualized basis) for the third quarter, to be paid on November 21, 2022. The distribution per unit represents a 70% increase over the prior year’s quarter and a 15% increase sequentially. Also, its current dividend translates to an 8.31% yield, while its four-year average dividend yield is 10.43%.
The company is highly committed to returning additional value to unitholders with the ultimate goal of reaching the previous distribution level of $0.305 per unit per quarter ($1.22 on an annualized basis) while balancing its leverage target, growth opportunities, and unit buybacks.
In September, the company acquired Woodford Express, LLC, a Mid-Continent gas gathering and processing system, for approximately $485 million in the same month. The system has 450 MMcf per day of cryogenic gas processing and treating capacity and over 200 miles of gathering and transportation lines connected to Energy Transfer’s pipeline network.
ET’s revenue increased 37.7% year-over-year to $22.94 billion for the fiscal 2022 third quarter ended September 30, 2022. Its operating income grew 37.3% year-over-year to $1.97 billion. The company’s adjusted EBITDA amounted to $3.09 billion, up 19.7% year-over-year. Its net income attributable to partners increased 58.4% year-over-year to $1.01 billion.
Furthermore, the company’s net income per unit came in at $0.29, registering an increase of 45% from the prior-year period. Also, distributable cash flow improved by 20.5% from the year-ago value to $2.08 billion.
Analysts expect ET’s revenue for the fiscal 2022 fourth quarter (ending December 31) to come in at $24.16 billion, representing an increase of 29.5% year-over-year. The consensus EPS estimate of $0.39 for the same quarter indicates a 33.5% year-over-year increase. The company surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
Shares of ET have gained 46.4% year-to-date and 24.4% over the past year to close the last trading session at $12.75.
ET’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system.
ET has a grade of A for Momentum and B for Value. It is ranked #27 of 94 stocks in the B-rated Energy-Oil & Gas industry.
Click here to see the additional POWR Ratings for ET for Quality, Growth, Stability, and Sentiment.
COST shares were trading at $492.83 per share on Wednesday afternoon, down $7.13 (-1.43%). Year-to-date, COST has declined -12.61%, versus a -18.70% 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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