Since the Fed announced its third consecutive super-sized interest rate hike, stocks have been sliding. Moreover, the central bank reaffirmed the bank's commitment to containing inflation and hinted that other comparable rate increases might occur this year.
The 10-year Treasury yield hit 3.992% on Tuesday, the highest since April 2010. The Dow and S&P 500 yesterday reached their lowest levels since November 2020.
Furthermore, Chicago Federal Reserve President Charles Evans said that the Fed is raising interest rates so quickly that it will be unable to appropriately assess the impact of its actions on the market. So, recession fears mount.
Given this backdrop, we think it could be wise to scoop up the shares of defensive companies Johnson & Johnson (JNJ), Walmart Inc. (WMT), and The Coca-Cola Company (KO). The inelastic demand for their products should help them survive the uncertainty well, and their dividend payouts should help generate a steady income stream amid a recession.
Johnson & Johnson (JNJ)
JNJ is a global researcher, developer, producer, and retailer of different healthcare products. Consumer health; pharmaceuticals; and MedTech make up the company's three business segments.
This month, JNJ developed its San Francisco Bay Campus, a cutting-edge Research and Development (R&D) center in the Bay Area, one of the most well-known global hubs for innovation and entrepreneurship. The campus connects essential scientific and technology resources by combining Janssen R&D, Johnson & Johnson Innovation, and Johnson & Johnson Technology.
Also, this month, JNJ stated that its Board of Directors had authorized a $5 billion repurchase of its common stock. Repurchases may be made on the open market or through privately negotiated agreements at the discretion of management. This action reflects the company's confidence in its business prospects.
JNJ’s forward annual dividend of $4.52 yields 2.7% on its current price. The company’s dividends have grown at a 6% CAGR over the past five years.
During the second quarter ended June 30, 2022, JNJ's reported sales increased 3% year-over-year to $24.02 billion. The company's adjusted net earnings grew 4.3% from the year-ago value to $6.91 billion, while its adjusted EPS grew 4.4% from the prior-year quarter to $2.59.
Street expects JNJ's revenues and EPS to rise 1.5% and 2.7% year-over-year to $95.14 billion and $10.06, respectively, in fiscal 2022. In addition, its EPS is expected to grow 4.1% per annum over the next five years. The stock has gained 1.1% over the past year.
JNJ'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.
JNJ also rated an A for Stability and a B for Growth and Quality. Within the F-rated Medical – Pharmaceuticals industry, it is ranked #1 of 163 stocks. To see additional POWR Ratings for Sentiment, Momentum, and Value for JNJ, click here.
Walmart Inc. (WMT)
The retail behemoth WMT operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry shops, discount stores, membership-only warehouse clubs, and e-commerce websites like flipkart.com, walmart.com, and Walmart.com.mx.
This month, in collaboration with international recycling pioneer TerraCycle, Walmart and P&G are offering free in-store recycling pickup for empty hair care, skin care, and cosmetic packaging at 25 Walmart sites across Pennsylvania, New Jersey, Oklahoma, and Arkansas.
The recycling program aims to benefit the environment and local communities by reducing waste and keeping non-recyclable plastic packaging out of landfills.
Also, this month, Fireworks, a leading video e-commerce solution, announced a collaboration deal with Walmart Connect, a closed loop omnichannel media company of WMT, to bring live stream and premium shoppable video content to the Walmart experience.
Walmart Connect hopes to create a premium video commerce experience by teaming with Firework to offer shoppable, short-form, social-media-style videos to its own digital domains while also making them available to advertisers.
WMT’s forward annual dividend of $2.24 yields 1.7% on its current price. The company’s dividends have grown at a 1.9% CAGR over the past five years.
For the second quarter ended June 30, 2022, WMT's total revenue increased 8.4% from the year-ago value to $152.86 billion. Its global advertising business grew by nearly 30%, led by Walmart connect in the U.S. and Flipkart advertising. The company’s net income surged 20.4% from the year-ago value to $5.15 billion. Its EPS increased 23.7% year-over-year to $1.88.
WMT’s EPS and revenue are expected to grow 11.9% and 2.9% year-over-year to $6.58 and $617.62 billion next year. The consensus revenue estimate of $600.05 billion in fiscal 2023 represents a 4.8% increase from the same period last year. The company’s shares have gained 5.5% over the past three months.
It is no surprise that WMT has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The stock also has a B grade for Sentiment, Quality, and Growth. In the A-rated Grocery/Big Box Retailer industry, it is ranked #5 of 38 stocks.
Beyond the POWR Ratings grades I have just highlighted, you can view the WMT ratings for Value, Momentum, and Stability.
The Coca-Cola Company (KO)
KO owns or licenses beverage concentrates, sparkling soft-drink brands, energy drinks, dairy, and syrups and offers them to fountain retailers such as restaurants and convenience stores. It operates through independent bottling partners, distributors, wholesalers, retailers, and bottling and distribution companies.
KO and Brown-Forman Corporation also announced a global partnership in June to produce the legendary Jack & Coke cocktail as a branded, ready-to-drink (RTD) pre-mixed cocktail option. Brown-Forman Corporation CEO and President Lawson Whiting said, “This partnership brings together two classic American icons to provide consumers with a taste experience they love in a consistent, convenient, and portable manner.”
KO’s forward annual dividend of $1.76 yields 3.1% on its current price. The company’s dividends have grown at a 3.6% CAGR over the past five years.
During the second quarter ended July 01, 2022, its organic revenue, which excludes currency fluctuations and acquisitions or divestitures, increased by 16%, as the company’s pricing and packaging mix increased by 12%. The global case volume of the company increased by 8%. Its non-GAAP EPS grew 4% year-over-year to $0.70.
Analysts expect KO’s revenues and EPS to rise 9% and 6.5% year-over-year to $42.15 billion and $2.47, respectively, in fiscal 2022. In addition, KO’s EPS is expected to rise 5.5% in the current quarter. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters. Over the past year, the stock has gained 5.2%.
KO's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our rating system. KO also has a B grade for Stability, Sentiment, and Quality. The stock is ranked #19 of the 34 stocks in the A-rated Beverages industry.
In addition to the POWR Rating grades I have just highlighted, you can see the KO ratings for Momentum, Growth, and Value.
JNJ shares were trading at $166.80 per share on Wednesday afternoon, up $1.86 (+1.13%). Year-to-date, JNJ has declined -0.58%, versus a -21.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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