The near-term market outlook remains shaky, but there are some signs of stability. In essence, it’s clear that recession risk has been rising, while inflation risk has abated since the Fed’s 75 basis point hike in May.
Obviously, a recession is a negative for stocks as it guarantees a decline in earnings. But, it also means that Treasuries find a bid as investors flock to the safety of these instruments. In turn, this provides support to certain parts of the market that benefit from lower rates or whose earnings are less impacted by economic conditions.
The best candidates also have strong balance sheets and attractive valuations. The silver lining of volatile market conditions is that such high-quality stocks can be bought at a discount. Below are 3 such stocks that investors should consider buying during this market correction: Elevance Health (ELVH), Pfizer (PFE), and Builders FirstSource (BLDR).
Elevance Health (ELVH)
ELVH is a managed care company, providing medical benefits to roughly 44 million members. The company offers employer, individual, and government-sponsored coverage plans. It is also the largest single provider of Blue Cross Blue Shield branded coverage. This sector has also been particularly strong due to a very low unemployment rate which means that the company has seen strong growth in enrollees.
Further, the pandemic was a boost to its bottom line as fewer people were going to the doctor and undergoing procedures. Therefore, the company’s payout ratio declined. Many analysts had been expecting an above-average reading as the economy normalized, but so far this has simply returned to pre-pandemic levels.
Another reason to like managed care stocks is their pricing power as healthcare spending tends to rise at a faster pace than inflation. And, they tend to be less affected by economic slowdowns. Currently, the company is seeing growth from its Medicare Advantage plans and virtual care services.
With these attributes, it’s not surprising that ELVH has an overall grade of A, which translates into a Strong Buy rating in our POWR Ratings system.
Pfizer (PFE)
PFE is one of the world’s top pharmaceutical companies. This sector has also outperformed in recent months as its revenues and earnings are largely disconnected from economic growth or changes in monetary policy. Further, these companies have heavy pricing power over drugs under patent and a strong balance sheet with low debt and $25 billion in cash.
PFE has also demonstrated the ability to constantly develop and bring to market blockbuster drugs. The most recent and well-known is its key role in the development of Pavlaxoid to treat COVID-19 patients.
In 2021, the company earned $4.42 in EPS and $81.3 billion in revenue. This year, analysts are forecasting $7.16 in EPS and $108.2 billion in revenue. These equate to very impressive growth rates of 62% and 30%. Despite such strong growth, the stock is quite cheap with a forward P/E of 9.
PFE’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. A-rated stocks have posted an average annual performance of 31.1% which compares favorably to the S&P 500’s annual performance of 8.0%.
Builders FirstSource (BLDR)
Another trend that is likely to remain strong even amidst these bearish headwinds is the housing market. It’s certainly possible that higher mortgage rates could slow its momentum, but the underlying supply and demand fundamentals remain supportive. Essentially, there is a demographic bulge as Millennials enter their 30s and 40s, while the supply of available housing is quite low relative to historical averages.
This bodes well for companies like BLDR which is a producer and supplier of building materials. It primarily sells to homebuilders, contractors, remodelers, and construction companies. Some of its major products are dimensional lumber and lumber sheet goods, millwork, windows, interior and exterior doors, and other building products. It also offers construction-related services such as professional installation, turn-key framing, and shell construction, spanning all its product categories.
BLDR’s low valuation means that it can deliver stellar returns for investors by continuing to deliver solid earnings growth. One potential catalyst is for the Fed to hike at a slower pace than what is expected by the market. Another is that inflationary pressures could ease which could lead to higher margins and revenues.
BLDR’s POWR Ratings are consistent with this combination of deep value and earnings growth. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. B-rated stocks have posted an average annual performance of 21.1% which compares favorably to the S&P 500’s average annual 8% gain.
What makes them “MUST OWN“?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +31.10% a year.
Click below now to see these top performing stocks with exciting growth prospects:
PFE shares fell $0.20 (-0.39%) in premarket trading Tuesday. Year-to-date, PFE has declined -10.94%, versus a -16.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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