The odds of a Fed-induced recession have been soaring amid sky-high inflation, resilient spending, and robust job data. Investors’ sentiments are simultaneously being hampered. Given that the volatilities could persist in the upcoming months, let us probe into stocks such as Novo Nordisk A/S (NVO), Altria Group, Inc. (MO), and Cardinal Health, Inc. (CAH).
The Fed’s efforts to tame the stubbornly high inflation will likely continue in the upcoming months of 2023 on the backs of stronger-than-anticipated job growth and resilient consumer spending despite high prices. A bout of anxiety has set in among investors post the Fed’s hawkish comments related to rate hikes.
Moreover, since inflation is still far above the target range of 2%, the Fed’s minutes signaled higher interest rate hikes in the near term. The CEO of Bank of America Corporation (BAC), Brian Moynihan, predicts the figure won’t begin to dip for at least another 12 months.
He explained, “They’re going to have to hold it there for a long time, because frankly, the labor market is still very tight, despite what you hear about layoffs, and financial conditions are strong, so companies have access to capital, albeit at higher costs.”
Furthermore, fearing such rate hikes could cause an economic downturn, he predicts the economy will contract by 0.5% and 1% each quarter, with a slight recession setting in the third quarter of 2023.
Furthermore, economist Nouriel Roubini has warned that the era of ultra-low inflation is over. He also believes that since there exist debts in the system, interest rate hikes further could lead to a real hard landing, leading to severe debts.
Amid uncertainties looming, fundamentally strong stocks NVO, MO, and CAH might be solid portfolio additions now.
Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the research, development, manufacture, and marketing of pharmaceutical products worldwide. The company operates through two segments: Diabetes and Obesity care; and Biopharm.
On 1 February 2023, NVO initiated a share repurchase program as a part of the overall share repurchase program of up to Kr 28 billion ($3.97 billion) to be executed during a 12-month period. Under this program, NVO intends to repurchase B shares for an amount up to Kr 5.60 billion ($793.26 million) in the period between 1 February 2023 and 2 May 2023.
NVO’s forward non-GAAP PEG multiple of 1.33 is 32.6% lower than the industry average of 1.98. Its trailing-12-month EBITDA margin of 45.73% is significantly higher than the 3.39% industry average.
NVO’s net sales for the fiscal year that ended December 31, 2022, increased 25.7% year-over-year to Kr176.95 billion ($25.07 billion), while its operating profit increased 27.6% year-over-year to Kr74.81 billion ($10.60 billion). The company’s net profit during the period was Kr55.53 billion ($7.87 billion) and Kr24.44 per share, up 16.3% and 17.8% year-over-year, respectively.
Analysts expect NVO’s EPS and revenue for the fiscal quarter ending March 2023 to increase 21.6% and 15% year-over-year to $1.07 and $6.90 billion, respectively. It surpassed revenue estimates in three out of the trailing four quarters.
The stock has gained 1.3% over the past month and 33.84% over the past six months to close the last trading session at $141.46.
NVO’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates 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 Quality and a B for Value, Stability, and Sentiment. NVO tops the list of 169 stocks in the Medical – Pharmaceuticals industry.
Click here for additional ratings for NVO’s Growth and Momentum.
Altria Group, Inc. (MO)
MO manufactures and sells smokeable and oral tobacco products in the United States. The company provides cigarettes, cigars, pipe tobacco, moist smokeless tobacco products, and oral nicotine pouches.
On March 6, MO announced that it had entered into a definitive agreement to acquire NJOY Holdings, Inc. for approximately $2.75 billion in cash payable at closing. The transaction terms include an additional $500 million in cash payments, contingent upon regulatory outcomes concerning certain NJOY products.
As a result of this transaction, MO’s enhanced smoke-free portfolio is expected to include full global ownership of products and technologies across the three largest smoke-free categories and a joint venture with JT Group for the commercialization of heated tobacco stick products.
On March 1, 2023, MO’s board of directors declared a quarterly dividend of $0.94 per share, payable to shareholders on April 28. 2023. This reflects its cash generation abilities.
The company paid dividends worth $1.70 billion in the fourth quarter and $6.60 billion for the full year.
In the fourth quarter, MO repurchased 8.3 million shares at an average price of $45.09, for a total cost of $374 million. Its board of directors authorized a new $1 billion share repurchase program, which is expected to complete by December 31, 2023.
In terms of its forward EV/EBIT, MO is trading at 8.55x, 42.9% lower than the industry average of 14.96x, while its forward non-GAAP P/E multiple of 9.21 is 49.1% lower than the industry average of 18.07.
MO’s revenue for the fiscal fourth quarter that ended December 31, 2022, stood at $6.11 billion. Its operating revenue increased 3.1% year-over-year to $2.82 billion. Adjusted net earnings attributable to MO rose 6% from the prior-year quarter to $2.11 billion. In addition, its adjusted EPS came in at $1.18, representing an increase of 8.3% year-over-year.
Analysts expect MO’s EPS and revenue for the first quarter ending March 31, 2023, to increase 5.9% and 1.9% year-over-year to $1.19 and $4.91 billion, respectively. It topped the consensus EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 3.7% to close the last trading session at $46.80. It increased marginally intraday.
MO’s promising prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Quality. Within the A-rated Tobacco industry, it is ranked #5 out of nine stocks.
To see the additional POWR Ratings of MO for Growth, Value, Momentum, Stability, and Sentiment, click here.
Cardinal Health, Inc. (CAH)
CAH is a provider of integrated healthcare services and solutions. It offers customized solutions for healthcare organizations like hospitals, pharmacies, clinical laboratories, and patients receiving care at home. The company operates through two segments, Pharmaceutical and Medical.
On March 6, 2023, CAH announced its collaboration with Signify Health (SGFY) to offer in-home clinical and medication management services through its outcomes business. This collaboration should help reduce costs and eliminate gaps in care for more than 2.3 million members nationwide to support their treatment journey from prescription to the pharmacy to home.
On February 10, CAH announced a quarterly dividend of $0.4957 per share from the company’s capital surplus, payable to shareholders on April 15, 2023. This reflects the company’s cash generation abilities.
In terms of its forward EV/Sales, CAH is trading at 0.10x, 97.4% lower than the industry average of 3.83x, while its forward non-GAAP P/E multiple of 13.39 is 31.3% lower than the industry average of 19.50.
For the second quarter of the fiscal year 2023, which ended December 31, 2022, CAH’s revenues increased 13.2% year-over-year to $51.47 billion. Its gross margin was $1.66 billion, indicating a 2.9% increase year-over-year.
Revenue for the pharmaceutical segment rose 15.2% year-over-year to $47.67 billion, while profit for the same segment increased 8.9% from the year-ago value to $464 million. Non-GAAP EPS for the same quarter stood at $1.32, representing an increase of 3.9% year-over-year.
Analysts expect CAH’s EPS for the fiscal third quarter ending March 2023 to increase 1.9% year-over-year to $1.48. Moreover, the company’s revenue for the same quarter is expected to grow 10.3% from the prior-year period to $49.45 billion. The company surpassed revenue estimates in all the trailing four quarters, which is impressive.
The stock has gained 38.6% over the past year to close the last trading session at $72.65. Moreover, it has gained 2.9% over the past six months.
CAH’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 stock has a B grade for Growth and Value. Within the Medical – Services industry, it ranks #2 out of 77 stocks.
Beyond what has been stated above, we have also given CAH’s ratings for Momentum, Stability, Sentiment, and Quality. Get all CAH ratings here.
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NVO shares were trading at $143.53 per share on Thursday morning, up $2.07 (+1.46%). Year-to-date, NVO has gained 6.05%, versus a 4.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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