Elevated inflation, combined with a strong labor market and solid consumer spending, positioned the Fed to hike the interest rate by 50 basis points this week until the sudden collapse of the Silicon Valley Bank and other financial institutions sparked calls for a potential pause.
Amid the drama surrounding regional banks, investing in safe equities, Johnson & Johnson (JNJ), The Coca-Cola Company (KO), and AbbVie Inc. (ABBV) could be wise for your portfolios.
Inflation continued to drop in February. The Consumer Price Index (CPI) came in at 6%, down from 6.4% in January, marking the smallest 12-month increase since September 2021 and the eighth straight month of improvement from its peak in June.
However, the monthly core inflation came higher than estimated at 0.5% and rose 5.5% year-over-year in February, indicating that inflation remains stubbornly high. On top of it, the jobs market continues to remain strong. Nonfarm payrolls rose by 311,000 in February, higher than the 225,000 analysts’ estimates.
Moreover, the collapse of SVB Financial Group (SIVB) has rattled global markets. The upcoming Fed meeting could feature an intense debate over the benefits of holding rates unchanged to provide more time to stabilize the banking crisis versus continuing to raise rates to bring down the elevated inflation to its target level.
As a wave of volatility has been re-introduced to the system, investors can look to invest in blue-chip stocks. These stocks are considered established, safe dividend-payers and are well-known to have historically provided investors with solid total returns. The wide market reach and high liquidity of these companies help their stocks stay resilient amid market fluctuations.
Therefore, investors could consider investing in highly rated blue-chip stocks JNJ, KO, and ABBV in the near term due to their fundamental strength.
Johnson & Johnson (JNJ)
JNJ is engaged in research and development, manufacturing, and sale of healthcare products, primarily focused on human health and well-being. It offers its products to the general public, retail outlets and distributors, wholesalers, hospitals, and healthcare professionals.
On March 7, the company paid the first quarter dividend of $1.13 per share on its common stock. JNJ’s four-year average dividend yield is 2.61%, and its current dividend of $4.52 translates to a 2.97% yield on prevailing prices.
Its dividend payouts have grown at a 5.9% CAGR over the past three years and a 6.1% CAGR over the past five years. Also, it has a record of 60 years of consecutive dividend growth.
On March 6, the company announced that late-breaking Phase 3 A DUE data showed that investigational single-tablet combination therapy of macitentan and tadalafil significantly improves pulmonary hemodynamics versus monotherapy in patients with pulmonary arterial hypertension (PAH).
In the same month, JNJ reported final pooled long-term safety results for STELARA (ustekinumab) through five years in adults with moderately to severely active Crohn’s disease and four years in adults with moderately to severely active ulcerative colitis (UC), as well as final four-year clinical and endoscopic outcomes from the UNIFI long-term extension study evaluating the efficacy of STELARA for the treatment of adults with moderately to severely active UC.
Such successive trial results should benefit the company significantly in the long run in terms of revenue and effective treatment options.
During the fiscal fourth quarter (ended December 2022), JNJ’s sales to customers amounted to $23.71 billion. The company’s adjusted net earnings grew 9.5% from the same period in the prior year to $6.22 billion, while its adjusted EPS came in at $2.35, representing a 10.3% increase year-over-year.
Street expects JNJ’s revenue to increase marginally year-over-year to $23.58 billion for the fiscal first quarter (ending March 31, 2023). Its EPS is expected to increase marginally from the prior-year period to $2.61 in the next quarter ending June 2023. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
JNJ’s revenue and EPS grew at a 4.9% CAGR and a 6.1% CAGR over the past three years, respectively. Its net income has grown at a 5.9% CAGR over the same period.
The stock’s trailing-12-month gross profit margin of 67.36% is 21% higher than the 55.66% industry average. Likewise, its trailing-12-month EBITDA margin of 34.46% is significantly higher than the industry average of 3.35%.
Over the past month, the stock has lost 5% to close the last trading session at $152.38.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates 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 an A grade for Stability and a B for Value and Quality. The stock is ranked #7 of 166 stocks in the Medical - Pharmaceuticals industry. Click here to see the other ratings of JNJ for Growth, Momentum, and Sentiment.
The Coca-Cola Company (KO)
KO is a famous beverage company that manufactures, markets, and sells various non-alcoholic beverages globally. It sells its products under the brands: Coca-Cola, Sprite, Fanta, Diet Coke, Coca-Cola Zero Sugar, Thumbs Up, Aquarius, vitaminwater, Minute Maid Pulpy, and Simply, among others.
On March 7, vitaminwater introduced two new flavors: ‘with love’ and ‘forever you’ to its zero-sugar lineup and an innovative reformulation for all six zero-sugar flavors. The two new delicious additions to the line-up will likely be demanded heavily by its customers across the nation.
On February 16, the company announced its 61st consecutive annual dividend increase, raising the quarterly dividend by 4.6% to 46 cents per common share. KO’s four-year average dividend yield is 3.05%, and its forward annual dividend of $1.84 translates to a 3.07% yield at the current price level. Its dividend has grown at a 3.4% CAGR over the past three years and a 3.5% CAGR over the past five years.
In terms of trailing-12-month KO’s levered FCF margin of 18.17% is 703.2% higher than the 2.26% industry average. Likewise, its trailing-12-month net income margin of 22.19% is 543.4% higher than the industry average of 3.68%.
KO’s net operating revenue increased 7% year-over-year to $10.13 billion in the fourth quarter that ended December 31, 2022. Its gross profit grew 4.4% from the year-ago value to $5.61 billion, while its adjusted operating income increased 10.9% from the prior-year quarter to $2.32 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $1.94 billion and $0.45, respectively.
The consensus EPS estimate of $0.65 for the first quarter ending on March 31, 2023, represents a marginal improvement year-over-year. The consensus revenue estimate of $10.81 billion for the current quarter indicates a 2.9% increase from the prior-year period. The company has an excellent earnings surprise history, as it surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
KO’s revenue and EBITDA have grown at 4.9% and 4% CAGRs over the past three years, while its levered FCF has grown at a 5.5% CAGR over the same period.
The stock has gained marginally over the past nine months to close the last trading session at $60.02.
KO’s solid prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Stability. The stock is ranked #19 of 36 stocks in the A-rated Beverages industry. To see additional POWR Ratings of KO for Growth, Value, Momentum, and Sentiment, click here.
AbbVie Inc. (ABBV)
ABBV is engaged in developing, manufacturing, and selling pharmaceuticals globally. It offers its products in various categories: immunology, oncology, neuroscience, eye care, and women's healthcare. The company markets its products to wholesalers, distributors, government agencies, healthcare facilities, and independent retailers.
On February 23, ABBV and Capsida Biotherapeutics Inc. announced an expanded strategic collaboration to develop genetic medicines for eye diseases with high unmet needs. This partnership combines ABBV’s extensive capabilities with Capsida's novel adeno-associated virus (AAV) engineering platform to deliver novel therapies enabling extraordinary benefits to eye patients.
On January 10, ABBV and Anima Biotech collaborated on the discovery and development of mRNA biology modulators for three targets across oncology and immunology. This collaboration leverages Anima's mRNA Lightning technology platform and ABBV’s extensive expertise to strengthen the company’s capability to address 'undruggable' targets with implications across multiple therapy areas.
On February 16, the company declared a quarterly dividend of $1.48 per share, payable to its shareholders on May 15, 2023. Its forward annual dividend of $5.92 translates to a 3.84% yield on current prices. ABBV’s four-year average dividend yield is 4.58%.
Its dividends have grown at 9.2% and 16.9% CAGRs over the past three and five years, respectively. Also, it has a record of nine years of consecutive dividend growth.
ABBV’s trailing-12-month gross profit margin of 71.53% is 28.5% higher than the 55.66% industry average. Likewise, its trailing-12-month EBITDA margin of 53.55% is significantly higher than the industry average of 3.35%.
ABBV’s net revenues increased 1.6% year-over-year to $15.12 billion in the fourth quarter that ended December 31, 2022. The company’s non-GAAP net earnings increased 16.5% from the year-ago value to $6.42 billion, while its adjusted EPS rose 16.9% from the prior-year quarter to $3.60.
Analysts expect ABBV’s EPS to increase marginally year-over-year to $11.11 in the fiscal year 2024. It surpassed the EPS estimates in each of the trailing four quarters. Over the past three years, its revenue and EPS grew at CAGRs of 20.4% and 7.9%, respectively.
ABBV’s shares have gained 11.5% over the past nine months to close the last trading session at $154.22.
ABBV’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Stability. Among the 166 stocks in the Medical – Pharmaceuticals industry, it is ranked #15.
Beyond what is stated above, we’ve also rated ABBV for Growth, Value, Momentum, and Sentiment. Get all the ABBV ratings here.
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JNJ shares were trading at $153.84 per share on Monday afternoon, up $1.46 (+0.96%). Year-to-date, JNJ has declined -12.29%, versus a 2.84% 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.
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