The year 2022 tossed several curve balls at consumers and investors. Supply chains remained in turmoil, Russia invaded Ukraine, inflation spiked to levels not seen since the early 1980s, and interest rates soared rapidly as the Federal Reserve took a whatever-it-takes strategy to rein in surging prices.
Unfavorable predictions for the global economy for 2023 are expected to drive consumer and market sentiment in the upcoming months. IMF chief Christine Lagarde has warned that this year will be “tougher than the year we leave behind” with a third of the world's economy in recession since the major drivers of global growth, the United States, Europe, and China, all experiencing declining activity.
Wall Street further predicts that the first half of the new year will be bumpy after the global markets saw their largest decline since the 2008 financial crisis last year. Recessionary anxieties continue to exist, leading to fewer households planning to make significant purchases over the next six months, despite the increased U.S. consumer confidence in December.
In the meantime, the COVID infection "bushfire" this year is expected to have a substantial negative influence on the economy and impede global advancement.
Given the current economic uncertainty, it could be prudent to watch out for fundamentally strong stocks Altria Group, Inc. (MO) and Schlumberger Limited (SLB) this month. These stocks have been recently upgraded in our proprietary POWR Ratings system.
Altria Group, Inc. (MO)
MO manufactures and sells smokable and oral tobacco products in the United States. It sells cigars, pipe tobacco, and moist smokeless tobacco under various brand names. The company's primary customers for its tobacco goods are wholesalers, distributors, and big retail chains.
On October 27, MO announced a strategic alliance with JT Group and the expansion of the company’s heated tobacco portfolio. Its portfolio includes a joint venture with a JT subsidiary for the marketing and commercialization of heated tobacco sticks in the United States and an extended pipeline of wholly-owned goods. The partnership might significantly benefit MO's enterprises.
On October 19, MO reached an agreement with Philip Morris International Inc. (PM) for the IQOS transition, under which MO is to receive cash payments from PMI totaling approximately $2.70 billion (pre-tax) in exchange for assigning exclusive U.S. commercialization rights to the IQOS Tobacco Heating System® effective April 30, 2024.
To further the company's goal, MO intends to use the cash proceeds for several things, including share repurchases, debt payments, and general corporate requirements.
For the fiscal 2022 third quarter ended September 30, revenue for Oral Tobacco Products increased 7% year-over-year to $670 million. MO’s operating companies’ income grew 3.4% from the prior-year quarter to $3.21 billion, while its operating income rose 5.5% from the year-ago value to $3.11 billion.
In addition, the company’s net earnings increased 108.2% year-over-year to $224 million, and its EPS stood at $0.12, a 108.1% increase from the year-ago value.
On December 7, MO's Board of Directors declared a regular quarterly dividend of $0.94 per share, payable on January 10, 2023, to shareholders of record on December 22, 2022. The company has raised its dividends for 53 consecutive years.
MO pays a $3.76 per share dividend annually, which translates to an 8.23% yield on the current price. Its four-year average dividend yield is 7.40%, and its dividend payments have grown at a CAGR of 7.7% over the past five years.
Analysts expect MO’s EPS for the current fiscal year (ending December 2022) to increase by 4.5% from the previous year to $4.81. Moreover, the company’s EPS for the next fiscal year is expected to grow 3.8% year-over-year to $5.00. MO has surpassed the consensus EPS in three of four trailing quarters.
Shares of MO have gained 9.4% over the past six months to close the last trading session at $45.71.
MO’s POWR Ratings reflect its strong outlook. On December 23, the stock’s overall rating was upgraded to B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality. Within the Tobacco industry, it ranked #4 of 9 stocks.
To see additional POWR ratings for Growth, Stability, Momentum, and Sentiment for MO, click here.
Schlumberger Limited (SLB)
SLB is a technology company that works with customers to provide digital solutions and deploy technologies to help them access energy. It operates through four divisions: Digital & Integration; Reservoir Performance; Well Construction; and Production Systems.
On December 7, SLB announced the expansion of its successful INNOVATION FACTORI network with the inauguration of a new location in Kuala Lumpur. While closely engaging with clients in Asia through digital innovation projects, SLB has reduced field development planning cycle times by more than 30%, optimized production performance to achieve cost savings of 80%, and boosted return on investment by 50%.
INNOVATION FACTORI Kuala Lumpur will enable the company further to expedite digital transformation with its clients in the region while also addressing Asia's specific energy security and decarbonization issues.
On November 16, SLB announced its collaboration with Oman's Ministry of Energy and Minerals and the Oman Investment Authority to develop a national strategy for utilizing the potential of Oman's geothermal resources. This statement follows the conclusion of a lengthy project to analyze data from more than 7,000 water, gas, and oil wells to identify geothermal potential sweet spots around the nation.
This partnership will present opportunities to the company by leveraging cutting-edge geothermal exploration technologies and scaling up activities in Oman's clean energy sector.
For the fiscal 2022 third quarter (ended September 30, 2022), SLB’s revenue increased 28% year-over-year to $4.48 billion, while its income before taxes grew 64% from the previous year’s quarter to $1.13 billion. Adjusted EBITDA came in at $1.76 billion, a 35% rise from the year-ago value.
In addition, the company’s net income rose 65% year-over-year to $907 million, and its EPS came in at $0.63, a 62% rise from the year-ago quarter.
SLB pays a $0.70 per share dividend annually, which translates to a 1.31% yield on the current price. Its four-year average dividend yield is 4.23%.
Analysts expect SLB’s EPS and revenue for the current fiscal year (ending December 2022) to increase 67.8% and 22.3% year-over-year to $2.15 and $28.03 billion, respectively.
In addition, the company’s EPS and revenue for the next fiscal year are expected to grow 38.7% and 16% year-over-year to $2.98 and $32.5 billion, respectively. Furthermore, SLB has surpassed its consensus EPS in all four trailing quarters, which is impressive.
The stock has gained 5.1% over the past month and 79.3% over the past year to close the last trading session at $53.46.
SLB’s POWR Ratings reflect its promising outlook. On December 30, the stock’s overall rating was upgraded to a B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Growth, Quality, and Sentiment. Within the Energy - Services industry, it ranked #15 of 42 stocks.
Click here to see additional ratings of SLB for Stability and Value.
MO shares were trading at $45.48 per share on Tuesday afternoon, down $0.23 (-0.50%). Year-to-date, MO has declined -0.50%, versus a -0.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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