Persistent inflation and fears over the central bank’s tightening are testing the resilience of many investors of late. With uncertainty hanging in the air, a portfolio of quality stocks that generate strong returns could help investors weather market volatility.
Thus, investors could consider investing in fundamentally strong stocks Johnson & Johnson (JNJ), Abbott Laboratories (ABT), and Humana Inc. (HUM), which could act as a defensive hedge in an uncertain market. Let’s look closer at their fundamentals and evaluate the potential of these stocks.
The Consumer Price Index (CPI) declined from 6.4% to 6% year-over-year in February, continuing an eight-month trend of declining annual inflation. However, the collapse of the Silicon Valley Bank paves a complex road ahead for the Fed to reach its target 2% level.
The Federal Reserve is at the crossroads of following through with its oft-stated intention to keep raising rates until it’s convinced inflation is declining toward acceptable levels or to step back to assess the current financial situation.
The labor market remained hot, as nonfarm payrolls increased by 311,000 in February, well ahead of the Wall Street estimate for 225,000 but still a step down from January’s 504,000. The unemployment rate rose to 3.6%.
Meanwhile, market pricing has whipsawed violently in recent days over concerns about the Fed’s next move. According to the CME FedWatch Tool, traders have returned to expecting a 0.25% point rate increase, pricing in an about 75% chance of a move that would take the federal funds rate to a range of 4.75%-5%.
Moreover, the development of new drugs, successful trial results, and collaborative agreements expanding their reach and offerings should help these companies stay afloat. Global health expenditure is expected to reach $1,700 per capita in 2026, compared to the 2021 figure of $1,530 per capita in Purchasing Power Parity (PPP).
As the stock market’s near-term outlook seems choppy due to macroeconomic uncertainties, investing in fundamentally sound stocks JNJ, ABT, and HUM in the defensive healthcare sector could help deliver healthy returns to your portfolio this year.
Johnson & Johnson (JNJ)
JNJ and its subsidiaries research, develop, manufacture, and sell various products in the healthcare field worldwide. The company operates through three segments: Consumer Health; Pharmaceutical; and Medical Devices.
On March 4, 2023, The Janssen Pharmaceutical Companies of JNJ announced final pooled long-term safety results for STELARA (ustekinumab) through five years in adults with moderately to severely active Crohn’s disease and four years in adults with moderately to severely active ulcerative colitis (UC),
It also announced the final four-year clinical and endoscopic outcomes from the UNIFI long-term extension study evaluating the efficacy of STELARA for the treatment of adults with moderately to severely active UC.
UNIFI study author Waqqas Afif, M.D. Associate Professor, Department of Medicine; Division of Gastroenterology at McGill University Health Centre in Montreal, Canada, said, “These data reinforce the known efficacy and safety profile of STELARA, and demonstrate it can be an effective long-term treatment option for patients living with moderately to severely active ulcerative colitis.”
Last year in December, JNJ acquired Abiomed, Inc. (ABMD), a leading provider of medical technology that provides circulatory support and oxygenation. Broadening JNJ’s MedTech portfolio and this acquisition should accelerate growth in its MedTech business.
JNJ’s four-year average dividend yield is 2.60%, and its forward annual dividend of $4.52 translates to a 2.93% yield. Its dividend has grown at a 6% CAGR over the past three years. The company paid a quarterly dividend of $1.13 per share on March 7, 2023. Also, it has a record of 60 years of consecutive dividend growth.
For the fiscal 2022 fourth quarter that ended on December 31, JNJ’s consumer health segment sales increased marginally year-over-year to $3.77 billion, while its reported sales to customers amounted to $23.71 billion. Moreover, its adjusted net earnings came in at $6.22 billion, representing a 9.5% year-over-year increase. Its adjusted EPS increased 10.3% year-over-year to $2.35.
Analysts expect JNJ’s revenue and EPS to increase marginally year-over-year to $24.43 billion and $2.61, respectively, for the fiscal second quarter (ending June 2023). It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the four trailing quarters.
The share gained marginally over the past five days to close the last trading session at $154.03.
JNJ’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates 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.
It has an A grade in Stability and B for Value and Quality. It is ranked #6 out of 166 stocks in the Medical - Pharmaceuticals industry. To see the additional POWR Ratings for Growth, Sentiment, and Momentum for JNJ, click here.
Abbott Laboratories (ABT)
ABT discovers, develops, manufactures, and sells healthcare products worldwide. It operates in four segments: Established Pharmaceutical Products; Diagnostic Products; Nutritional Products; and Medical Devices.
On March 5, ABT revealed late-breaking data for MitraClip, the leading therapy for treating leaky valves in patients with mitral regurgitation, demonstrating the device's long-term advantages in heart failure patients.
Based on the landmark COAPT trial results, MitraClip is safe and effective and can reduce hospitalizations while improving survival in heart failure patients with severe secondary (or functional) MR, a disease that has thus far been extremely difficult to treat. This could support the company's bottom line.
On February 17, ABT announced a quarterly dividend of $0.51 per share, payable on May 15, 2023. Its forward annual dividend of $2.04 translates to a 2.06% yield on current prices. This marks ABT’s 51st consecutive year of dividend growth and the 397th consecutive quarterly dividend payment.
Its four-year average dividend yield is 1.51%. Also, its dividends have grown at 13.3% and 12.3% CAGRs over the past three and five years, respectively.
In the same month, ABT announced the acquisition of Cardiovascular Systems, Inc. (CSII), a medical device company that offers innovative solutions for treating vascular and coronary disease. Through this acquisition, ABT is expected to gain an innovative, complementary solution in treating vascular disease through CSII’s leading atherectomy system.
ABT’s net sales increased 1.3% year-over-year to $43.65 billion for the fiscal year that ended on December 31, 2022. Its non-GAAP earnings before taxes came in at $11.23 billion, up 1.3% from the year-ago value. The company’s adjusted net earnings rose 1.1% year-over-year to $9.47 billion, while its adjusted EPS increased 2.5% year-over-year to $5.34.
Street expects ABT’s EPS to increase by 10% year-over-year to $4.48 for the fiscal year 2024. The company’s revenue is expected to grow by 5.6% year-over-year to 42.17 billion. ABT shares gained marginally intraday to close the last trading session at $99.03.
ABT’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It also has a B grade for Stability, Sentiment, Quality, and Value. In the Medical - Devices & Equipment industry, it is ranked #12 of 140 stocks. Click here to see the other ratings of ABT for Growth and Momentum.
Humana Inc. (HUM)
HUM operates as a health and well-being company in the United States. It operates through two segments: Insurance and CenterWell. The company provides medical and supplemental benefit plans to individuals. Also, it offers pharmacy solutions, provider services, and home solutions services to its health plan members and third parties.
On March 2, HUM and Aledade, a network of independent primary care providers, announced a decade-long agreement to provide value-based primary care from in-network Aledade-enabled clinicians to Humana's Medicare Advantage members. Through this collaboration, both companies aim to deliver personalized value-based health care for patients nationwide.
George Renaudin, HUM’s President of Medicare and Medicaid, said, “Aledade was one of the largest value-based care providers for Humana in 2022, and our relationship will continue our goal to improve access to proactive screenings to identify and treat illnesses early. With an increased focus on value-based care, our entire health care system can see the results through higher-quality care and lower health care costs.”
On February 16, the company declared a quarterly dividend of $0.885 per share, representing an increase of 12.4% from its previous dividend of $0.7875 per share. The dividend is payable to its stockholders on April 28, 2023.
Its forward annual dividend of $3.54 translates to a 0.72% yield on current prices. HUM’s four-year average dividend yield is 0.65%. Also, its dividends have grown at 12.7% and 14.5% CAGRs over the past three and five years, respectively. The company has a record of six consecutive years of dividend growth.
In the fourth quarter that ended December 31, 2022, HUM’s total revenues increased 6.6% year-over-year to $22.44 billion. Its income from operations improved 103.3% from the year-ago value to $124 million. The company’s adjusted EPS grew 30.6% year-over-year to $1.62, while its non-GAAP income before income taxes and equity in net earnings came in at $263 million, up 58.4% year-over-year.
Also, its adjusted operating cash inflows were $651 million, compared to operating cash outflows of $96 million in the prior-year quarter.
The consensus revenue estimate of $26.49 billion for the fiscal first quarter (ending March 31, 2023) reflects a 10.5% year-over-year growth. The consensus EPS estimate of $9.35 for the current quarter indicates a 16.3% increase from the previous year. Moreover, HUM surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 16.8% to close the last trading session at $494.38.
It is no surprise that HUM has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, and Sentiment. Out of ten stocks in the A-rated Medical - Health Insurance industry, it is ranked #2.
In addition to the POWR Ratings stated above, we have also given HUM grades for Momentum, Stability, and Quality. Get all HUM ratings here.
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JNJ shares were trading at $153.46 per share on Friday afternoon, down $0.57 (-0.37%). Year-to-date, JNJ has declined -12.50%, versus a 2.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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