Despite the Federal Reserve’s aggressive efforts to slow the labor market and tackle inflation, job growth was better than expected in November. As per the Labor Department, nonfarm payrolls increased by 263,000 for the month, above the expected 200,000, while the unemployment rate was 3.7%. On top of it, average hourly earnings jumped 0.6% for the month, double the Dow Jones estimate.
On the bright side, these numbers indicate that the U.S. economy recovered in the year's second half. Moreover, while the warnings about the possibility of a recession have been coming out of the financial sector since the summer when JP Morgan Chase & Co. CEO Jamie Dimon said he saw a “hurricane” gathering on the economic horizon, economists now predict the recession to be mild, boosting optimism.
In addition, U.S. GDP grew at a 2.9% annualized rate fiscal third quarter, a sharp bounce back from shrinking in the first half of the year. This restoration of growth in the third quarter was led by solid gains in exports and consumer spending that was stronger than originally reported.
Given this backdrop, fundamentally strong and smart stocks McDonald’s Corporation (MCD), Cigna Corporation (CI), and O’Reilly Automotive, Inc. (ORLY) might be solid buys now.
McDonald’s Corporation (MCD)
MCD operates and franchises its restaurants in the United States and internationally. The company’s segments include the United States (U.S.), International Operated Markets (IOM), and International Developmental Licensed Markets & Corporate (IDL).
On October 13, MCD declared a quarterly cash dividend of $1.52 per share of common stock payable on December 15, 2022, representing an increase of 10% over the company’s previous quarterly dividend.
Its annual dividend of $6.08 yields 2.22% on the current share prices. The company’s dividend payouts have increased at a 6.2% CAGR over the past three years and an 8.1% CAGR over the past five years. Moreover, the company has a record of 21 years of consecutive dividend growth.
During the fiscal third quarter that ended September 30, 2022, MCD’s revenues from franchised restaurants increased 4.6% year-over-year to $3.67 billion. Its total operating costs and expenses decreased 3.3% year-over-year to $3.11 million, while the company reported its non-GAAP EPS to be $2.68.
Street expects MCD’s EPS to grow 9.3% year-over-year to $2.44 in the current fiscal quarter ending December 2022. It has surpassed EPS estimates in three of the four trailing quarters.
Over the past six months, the stock has gained 10.1%, closing the last trading session at $273.40. MCD has a 24-monthly beta of 0.66.
MCD’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MCD has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Restaurants industry, it is ranked #15 out of 45 stocks.
In addition to the POWR Ratings stated above, you can see the MCD for Growth, Value, and Momentum.
Cigna Corporation (CI)
CI provides insurance and related products and services in the United States. CI has two segments: Evernorth and Cigna Healthcare. The company distributes its products and services through insurance brokers and consultants.
On October 12, CI announced the availability of comprehensive and cost-effective health plans for Texas residents on the individual marketplace this year. This should provide access to affordable, predictable, and simple healthcare coverage and attract more customers.
On September 15, CI’s Evernorth segment announced that it had expanded its Digital Health Formulary to include five new app-based programs to help people better manage their sleep issues, anxiety, alcohol and opioid use disorders, and inflammatory conditions. The expansion is expected to be beneficial for the company.
On October 26, CI declared a dividend of $1.12 per share on its common stock, payable to shareholders on December 21.
Its annual dividend of $4.48 yields 1.37% on prevailing prices. The company’s dividend payouts have increased at a 382% CAGR over the past three years and a 157% CAGR over the past five years.
CI’s total increased 2.2% year-over-year to $45.28 billion for the third quarter that ended September 30, 2022. Its Pharmacy revenues came in at $32.76 billion, up 5.6% year-over-year. Additionally, its adjusted EPS grew 5.4% year-over-year to $6.04.
Analysts expect CI’s EPS to increase 13.2% year-over-year to $23.16 in the current fiscal year ending December 2022. Its revenue is expected to increase 3.7% year-over-year to $180.58 billion for the current year. It has surpassed EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 63.7% to close its last trading session at $288.04. It has gained 42.49% year-to-date. CI has a 24-monthly beta of 0.52.
It is no surprise that CI has an overall A rating, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Value, Sentiment, and Quality. Within the A-rated Medical – Health Insurance industry, it is ranked #5 of 11 stocks.
To access additional POWR Ratings for Growth, Momentum, and Stability for CI, click here.
O’Reilly Automotive, Inc. (ORLY)
ORLY operates as a retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories. The company provides new and remanufactured automotive hard parts, maintenance, and accessories. It also offers auto body paint, related materials, automotive tools, and professional service provider service equipment.
ORLY’s sales increased 9.2% year-over-year to $3.80 billion for the fiscal third quarter ended September 30, 2022. The company’s gross profit increased 6.4% year-over-year to $1.93 billion. Its net income increased 4.8% from the year-ago period to $585.44 million, while its EPS rose 13.6% from the prior-year quarter to $9.17.
For the fiscal first quarter ending March 2023, ORLY’s EPS is expected to increase 14.3% year-over-year to $8.19. Similarly, its revenue is expected to rise 5.6% year-over-year to $3.48 billion.
The stock has gained 35.9% over the past six months to close the last trading session at $855.97. It has a 24-monthly beta of 0.82.
As reflected in its fundamentals, ORLY has an overall rating of B, which translates to a Buy in our proprietary rating system. The stock has an A grade for Sentiment and Quality. It’s ranked #13 of 63 stocks in the B-rated Auto Parts industry.
Click here to see ORLY’s additional growth, Value, Momentum, and stability ratings.
MCD shares fell $1.70 (-0.62%) in premarket trading Monday. Year-to-date, MCD has gained 3.62%, versus a -13.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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