Following last year's abysmal performance, stocks have had an encouraging start to 2023, with the Nasdaq Composite and S&P 500 rising more than 10% and 6%, respectively, last month. January has been Nasdaq's best month since July.
Also, stocks rallied on better-than-expected fourth-quarter earnings and cooling inflationary pressures. Investors expect the Federal Reserve to issue smaller interest rate increases this year.
Furthermore, Goldman Sachs experts anticipate a 35% risk of a recession for 2023, which is below the median of 65% forecasted in a Wall Street Journal survey. This suggests that the economy might experience a soft landing this year. Jan Hatzius, chairman of Goldman Sachs Research and the firm’s top economist, wrote in the team’s macro outlook 2023, “There are strong reasons to expect positive growth in coming quarters.”
With the easing inflation and resilient growth raising expectations that the economy will scrape through this year without a recession, some economists warn that the Fed’s continued rate hikes to bring inflation down to its 2% target could hurt economic growth. So, market volatility is expected to remain elevated in the near term.
Given the backdrop, it could be wise to invest in fundamentally strong stocks Johnson & Johnson (JNJ), Novartis AG (NVS), and LCNB Corp. (LCNB) to benefit from their resilience and reliable dividends.
Johnson & Johnson (JNJ)
JNJ is a diversified healthcare conglomerate. It is involved in the research and development, manufacture, and selling of a variety of healthcare products. It operates through three segments, Consumer Health; Pharmaceutical; and MedTech. Its primary focus is on human health and well-being products.
On December 22, 2022, JNJ concluded the acquisition of Abiomed Inc. (ABMD), a world leader in revolutionary heart, lung, and kidney support technologies. With this acquisition, the company hopes to expand its MedTech division and provide cutting-edge medical technologies to a larger global population.
For the fourth quarter that ended December 2022, JNJ’s adjusted earnings before the provision for taxes on income grew 17% year-over-year to $7.42 billion. Its adjusted net earnings rose 9.5% from the prior year’s period to $6.22 billion, and its adjusted EPS increased 10.3% year-over-year to $2.35.
JNJ has a record of raising its dividends for 60 consecutive years. It pays a $4.52 per share dividend annually, which translates to a 2.79% yield on the current price level. The company’s dividend payments have grown at a 6% CAGR over the past five years, and its four-year average dividend yield is 2.60%.
The consensus revenue estimate of $97.73 billion for the fiscal year ending December 2023 indicates a 2.9% year-over-year improvement. The consensus EPS estimate of $10.52 for the ongoing year reflects a rise of 3.7% from the prior year. Furthermore, JNJ surpassed its consensus EPS in all four trailing quarters, which is impressive.
Shares of JNJ have gained marginally intra-day to close the last trading session at $163.42.
JNJ’s POWR Ratings reflect its strong outlook. 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, each weighted to an optimal degree.
The stock also has a B grade for Value, Stability, and Quality. In the 172-stock Medical - Pharmaceuticals industry, it is ranked #5.
Beyond what we stated above, we also have JNJ’s ratings for Growth, Momentum, and Sentiment. Get all JNJ ratings here.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS manufactures and sells healthcare products globally. Its segments include Innovative Medicines and Sandoz. While Sandoz manufactures and markets final dosage form medications, Innovative Medicines offers prescription medications for patients and healthcare professionals.
On January 24, 2023, Sandoz, a division of NVS and the global leader in off-patent medicines, struck a deal with Astellas to acquire worldwide product rights to the leading systemic antifungal drug Mycamine®. This addition should significantly improve Sandoz's hospital services globally and enhance its current position as the industry leader in generic antibiotics.
Moreover, On December 7, 2022, NVS agreed to a global licensing deal with MorphoSys AG's (MOR) subsidiary Constellation Pharmaceuticals Inc to research, develop, and commercialize its pre-clinical inhibitors of a novel cancer target. NVS is expected to assume full responsibility for the program's subsequent R&D and commercialization initiatives, which would aid in NVS’ growth.
On the same day, Sandoz announced an additional €50 million ($54.24 million) investment to support increased European manufacturing capacity for finished dosage form (FDF) penicillin. The development is expected to enable a double-digit increase in the business's potential penicillin-producing capacity in the future.
For the fiscal fourth quarter ended December 31, 2022, NVS’ free cash flow came in at $3.55 billion, up 17.3% year-over-year. The company’s core operating income increased 5.5% year-over-year to $4.03 billion, while its core net income was $3.25, an increase of 3.7% year-over-year. Also, its core EPS grew 8.6% from the year-ago value to $1.52.
NVS pays a $3.33 per share dividend annually, which translates to a 3.71% yield on the current price level. Its dividend payouts have grown at a 5.5% CAGR over the past three years, and its four-year average dividend yield is 3.58%.
Analysts expect NVS’ revenue and EPS to increase 1.8% and 6.7% year-over-year to $52.27 billion and $6.48, respectively, for the fiscal year ending December 2023. The stock has gained 5.8% over the past six months to close the last trading session at $90.62.
NVS’ strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
NVS has an A grade for Stability and a B for Value, Sentiment, and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #11 of 172 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see NVS ratings for Growth and Momentum here.
LCNB Corp. (LCNB)
LCNB operates as the financial holding company for LCNB National Bank, which conducts business in Ohio. It provides investment products and services such as financial needs analysis, mutual funds, trading in securities, annuities, life insurance, security brokerage, and more.
On January 23, 2023, LCNB declared a cash dividend of $0.21 per common share, a 5% increase over the same period last year. The common stock cash dividend will be paid to shareholders on March 15, 2023. The company has been consistently paying dividends for a long time, which should offer investors' confidence in the company's future payout potential.
LCNB has increased its dividends for five consecutive years. It pays a $0.84 per share dividend annually, which translates to a 4.60% yield on the current price level. LCNB’s dividend payments have grown at a 5.5% CAGR over the past three years, and its four-year average dividend yield is 4.44%.
For the fiscal fourth quarter that ended December 31, LCNB’s net interest income increased 13.3% year-over-year to $16.21 million, and its income before income taxes grew 13.7% year-over-year to $7.79 million.
Moreover, the company’s net income came in at $6.41 million, up 13.9% from the year-ago value, while EPS stood at $0.57, a 26.7% rise from the prior year’s period.
The consensus revenue and EPS estimate of $373.75 million and $1.35 for the ongoing fiscal year ending December 2023 indicate 1.4% and 31.1% year-over-year improvements, respectively. Furthermore, LCNB surpassed its consensus EPS in all three trailing quarters.
The company’s EPS is expected to grow by 3.6% in the current year and 1.4% in the next five years. Shares of LCNB have gained 17.2% over the past six months to close the last trading session at $18.25.
LCNB’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Stability and a B for Momentum, Growth, and Sentiment. Within the Mid-Atlantic Regional Banks industry, it is ranked #4 of 39 stocks.
To see additional POWR Ratings for Quality and Value for LCNB, click here.
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JNJ shares were trading at $164.03 per share on Wednesday afternoon, up $0.61 (+0.37%). Year-to-date, JNJ has declined -7.14%, versus a 5.72% 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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