The central bank raised its policy rate by nearly 400 basis points to rein in inflation this year. As a result, borrowing costs have increased significantly, bumping companies' average cost of capital from their lowest levels in 2021.
This year, the stock market plunged into the bear market as the breakneck hike in interest rates evaporated demand for risk-sensitive assets. While the central bank has lowered the magnitude of the increase this month and has indicated smaller raises over the coming months, it has hinted that the terminal rate could rise to more than 5% in 2023.
Moreover, Gregory Daco, EY Parthenon’s chief economist, in a note earlier this month, projected that consumer spending will flatline in 2023 after growing 2.7% this year. Daco also noted that persistent inflation, tighter financial conditions, and weaker global growth could help tip the United States into a mild recession during the first half of the year.
Amid the mounting uncertainties, investors should focus on their long-term strategies and invest in rock-solid stocks, Johnson & Johnson (JNJ) and Molina Healthcare, Inc. (MOH).
Johnson & Johnson (JNJ)
JNJ and its subsidiaries research, develop, manufacture, and sell various products in the healthcare field worldwide. The company operates through three segments: Consumer Health; Pharmaceutical; and Medical Devices.
On December 22, 2022, JNJ announced the completion of its acquisition of Abiomed Inc. (ABMD), a world leader in breakthrough heart, lung, and kidney support technologies.
Joaquin Duato, CEO of JNJ, 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 has paid dividends for 60 consecutive years. Over the past three years, its dividend payouts have grown at a 5.9% CAGR. While JNJ’s four-year average dividend yield is 2.60%, its current dividend of $4.52 translates to a 2.55% yield.
In terms of the trailing-12-month gross profit margin, the stock’s 67.52% is 22.22% higher than the 55.24% industry average. Likewise, its 33.33% trailing-12-month EBITDA margin is 794.70% higher than the industry average of 3.73%.
JNJ’s sales to customers came in at $23.79 billion for the third quarter that ended 2022, increasing marginally year-over-year. Moreover, its net earnings rose 21.6% year-over-year to $4.46 billion. Also, its EPS grew 22.6% year-over-year to $1.68.
JNJ’s revenue is expected to increase 1.4% year-over-year to $95.04 billion in the current fiscal year ending December 2022. Its EPS is expected to grow 2.5% year-over-year to $10.05 in the current year. It surpassed EPS estimates in all four trailing quarters.
Over the past six months, the stock has gained 7.9% to close the last trading session at $177.56.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
JNJ has an A grade for Stability and a B for Quality. In the Medical – Pharmaceuticals industry, it is ranked #6 out of 160 stocks.
Click here for the additional POWR Ratings for Value, Sentiment, Growth, and Momentum for JNJ.
Molina Healthcare, Inc. (MOH)
MOH offers managed healthcare services under Medicaid and Medicare programs and through state insurance marketplaces. The company operates through four segments: Medicaid; Medicare; Marketplace; and Other.
On October 3, 2022, MOH announced the closure of its acquisition of AgeWell New York’s Medicaid Managed Long-Term Care business. As of September 30, 2022, AgeWell’s MLTC business served approximately 13,000 members. This is expected to bolster MOH’s capabilities and expand its reach.
Its trailing-12-month EBITDA margin of 4.76% is 27.63, higher than the industry average of 3.73%. Furthermore, the stock’s 2.54% trailing-12-month asset turnover ratio is 652.82% higher than the industry average of 0.34%.
MOH’s total revenue increased 12.6% year-over-year to $7.93 billion in the fiscal third quarter that ended September 30, 2022. Its operating income increased 51.6% year-over-year to $335 million. The company’s adjusted net income increased 54.9% year-over-year to $254 million, while its adjusted EPS came in at $4.36, representing an increase of 54.1% year-over-year.
Analysts expect MOH’s EPS and revenue to increase 31.5% and 13.8% year-over-year to $17.80 and $31.61 billion, respectively. The company has an excellent earning surprise history as it has surpassed consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 18.4% to close the last trading session at $333.27.
MOH’s promising prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. It is ranked #4 among the 11 stocks within the A-rated Medical – Health Insurance industry.
To access additional MOH ratings for Momentum, Stability, and Sentiment, click here.
JNJ shares were trading at $176.73 per share on Friday morning, down $0.83 (-0.47%). Year-to-date, JNJ has gained 6.02%, versus a -18.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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