The stubbornly-high inflation, the Fed’s persistent interest rate hikes to tame it, and softening demand have created a Lollapalooza effect, dragging the economy downward. As a result, the stock market has been witnessing significant volatility.
With a soft landing for the economy increasingly going out of the equation, economists, on average, set the probability of a recession in the next 12 months at 63%, up from 49% in July’s survey. Aneta Markowska, the chief economist at Jefferies LLC, expressed her concern by saying, “The coming drag from higher rates and stronger dollar is enormous and will knock off about 2.5 percentage points from next year’s GDP” growth.
Since the market may not return to stability anytime soon, the best stocks to buy may belong to businesses providing essential goods and services, thereby immunizing their demand and margins to inflation and recession.
To that end, it could be wise to invest in fundamentally strong and well-entrenched stocks Pfizer Inc. (PFE), Waste Management, Inc. (WM), and Ingles Markets, Incorporated (IMKTA) to brace your portfolio for the potential recession ahead.
Pfizer Inc. (PFE)
PFE is a world-renowned research-based biopharmaceutical company. The company discovers, develops, manufactures, sells, and distributes biopharmaceutical products, such as medicines, vaccines, and other therapies. The company operates through two segments: Biopharma and PC1.
On October 5, PFE announced the completion of the Global Blood Therapeutics, Inc. (GBT) acquisition. The acquisition reinforces Pfizer’s commitment to sickle cell disease (SCD) and brings a leading SCD portfolio and pipeline with the potential to address critical needs in an underserved patient community.
On October 3, PFE announced the completion of the acquisition of Biohaven Pharmaceutical Holding Company Ltd., the maker of NURTEC® ODT (rimegepant). This acquisition adds an innovative migraine therapy approved for both acute treatment and prevention of episodic migraine in adults.
On September 22, PFE announced a cash dividend of $0.40 per common stock for the fourth quarter, payable on December 5, 2022. The company’s $1.60 per share forward annual dividend translates to a 3.73% yield at the current price. Its 4-year average dividend yield is 3.62%. Its dividends have grown at a CAGR of 5.7% over the past three years and 5.9% over the past five years.
PFE’s current payout ratio is 26%, and the company has increased its dividend for 11 consecutive years.
For the second quarter of the fiscal year 2022, PFE’s revenues increased 46.8% year-over-year to $27.74 billion. During the same period, adjusted income and EPS improved 93.5% and 92.5% year-over-year to $11.66 billion and $2.04, respectively.
Analysts expect PFE’s revenue and EPS for the fiscal year 2022 to increase 25% and 47% year-over-year to $101.57 billion and $6.50, respectively. Moreover, the company has an impressive earnings surprise history as it has topped the consensus EPS estimates in each of the trailing four quarters.
The stock has gained marginally over the past year to close the last trading session at $42.91.
PFE’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 are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PFE also has grade A for Value and grade B for quality. It is ranked #10 in the 161-stock Medical – Pharmaceuticals industry.
Click here to see the additional POWR Ratings for PFE (Growth, Momentum, Stability, and Sentiment).
Waste Management, Inc. (WM)
WM, through its subsidiaries, provides waste collection, transfer, disposal services, and recycling and resource recovery and operates and owns landfill gas-to-energy facilities in the United States. Through its offerings, the company serves residential, commercial, industrial, and municipal customers throughout North America.
On September 23, WM paid its shareholders a quarterly cash dividend of $0.65 per share. The company currently pays a $2.60 dividend annually, which translates to a yield of 1.63% at the current price. Its 4-year average dividend yield is 1.74%, and the current payout ratio is 46.67%. The company has kept increasing its dividends for the past 18 years.
On September 13, WM announced that it had agreed to acquire a controlling interest in Avangard Innovative's U.S. business, which will operate as Natura PCR. Natura PCR is expected to scale and grow its recycling capacity to produce an estimated 400 million pounds per year of post-consumer resin (PCR) in five years.
Through this acquisition, WM expects to deliver new recycling capabilities for its customers and provide circular solutions for films and clear plastic wrap used commercially.
For the second quarter of the fiscal year 2022 ended June 30, WM’s revenue increased 12.3% year-over-year to $5.03 billion. During the same period, the company’s adjusted operating income increased 11.6% year-over-year to $907 million, while its adjusted net income increased 11.3% year-over-year to $599 million. As a result, WM’s adjusted EPS for the quarter increased 13.4% year-over-year to $1.44.
Analysts expect WM’s revenue and EPS for the current fiscal year (ending December 2022) to increase 10% and 18% year-over-year to $19.73 billion and $5.71, respectively. Amid widespread market volatility, the stock has declined marginally over the past six months to close the last trading session at $159.28.
WM’s strong performance and bright prospects have earned it an overall POWR Rating of A, which translates to a Strong Buy in our proprietary rating system. It also has grade A for Quality and grade B for Stability.
WM is ranked #2 among 15 stocks in the A-rated Waste Disposal industry.
Please click here for additional ratings for Growth, Value, Momentum, and Sentiment for WM.
Ingles Markets, Incorporated (IMKTA)
IMKTA operates as a supermarket chain in the United States. It offers customers a range of nationally advertised food products, including grocery, meat, and dairy products, produce, frozen foods, and other perishables and non-food products. Non-food products include fuel centers, pharmacies, health/beauty/cosmetic products, general merchandise, and private label items.
On October 13, IMKTA paid cash dividends of $0.165 and $0.15 per share on all of its Class A and Class B common stock, translating to an annual rate of $0.66 and $0.60, respectively. This translates to a dividend yield of 0.77% at the current price.
For the third quarter of the fiscal year 2022 ended June 25, IMKTA’s net sales increased 14.1% year-over-year to $1.46 billion, while its gross profit increased 4.3% year-over-year to $351.88 million. The company’s total assets stood at $2.22 billion as of June 25, 2022, compared to $2.02 billion as of September 25, 2021.
The stock has gained 3.3% over the past month and 32% over the past year to close the last trading session at $86.17.
IMKTA’s fundamental strength is reflected in its overall rating of A, which translates to a Strong Buy in our POWR Ratings system. It also has grade A for Quality and grade B for Growth, Value, and Stability.
IMKTA tops the list of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
Click here for additional POWR Ratings on Momentum and Sentiment for IMKTA.
PFE shares were trading at $44.92 per share on Friday afternoon, up $2.01 (+4.68%). Year-to-date, PFE has declined -22.13%, versus a -20.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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