Although the Federal Reserve announced a 50-basis-point interest rate hike last week, breaking a series of four consecutive 75-basis-point rate hikes, officials indicated plans to keep raising rates through next year, with no decreases until 2024. According to its median prediction, the terminal rate might reach 5.1% in 2023.
Amid consecutive rate hikes, recession odds are rapidly rising. According to the New York Fed's Recession Probability model, there's a 38% probability of a recession in 2023.
In addition, DataTrek co-founder Nicholas Colas said, "It is clearly saying high short-term interest rates are going to cause a recession in the next 12 months. Moreover, these odds are very likely to increase."
Given the uncertainties, quality stocks UnitedHealth Group Incorporated (UNH), PepsiCo, Inc. (PEP), and Darden Restaurants, Inc. (DRI) could help investors survive a recession, owing to their solid fundamentals and dividend-paying record.
UnitedHealth Group Incorporated (UNH)
UNH operates as a diversified healthcare company in the United States. It operates through four segments: UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx.
On November 16, 2022, UNH and Life Time Group Holdings, Inc. (LTH) announced an expansion of their partnership to include access to all Life Time locations, helping even more people stay active and improve their physical and mental well-being.
This will help UNH deliver additional value to its customers, thereby driving appreciation of brand equity and expansion of market share.
UNH has paid dividends for 20 consecutive years. Over the last three years, UNH's dividend payouts have grown at 15.63% CAGR. While UNH's four-year average dividend yield is 1.36%, its current dividend translates to a 1.25% yield.
UNH's total revenue came in at $80.89 billion for the third quarter that ended September 30, 2022, up 11.8% year-over-year. Its net earnings increased 28.7% year-over-year to $5.26 billion. Also, its EPS came in at $5.55, up 29.7% year-over-year.
Analysts expect UNH's revenue to increase 12.6% year-over-year to $323.82 billion in the current year. Its EPS is estimated to grow 15.8% year-over-year to $22.03 in 2022. It has surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 7.6% to close the last trading session at $527.09.
UNH's strong fundamentals are reflected in its POWR Ratings. The stock's overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UNH has a B for Growth, Stability, Sentiment, and Quality. In the A-rated Medical - Health Insurance industry, it is ranked #2 out of 11 stocks. Click here for the additional POWR Ratings for Value and Momentum for UNH.
PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. It operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, South Asia; Asia Pacific, Australia, and New Zealand; and China Region.
On December 5, 2022, PEP announced a new packaging goal to double down the scale of reusable packing models from 10% to 20% by 2030. This announcement aligns perfectly with the company's sustainable packaging vision.
PEP has paid dividends for 50 consecutive years. Over the last three years, PEP's dividend payouts have grown at 6.1% CAGR. While PEP's four-year average dividend yield is 2.79%, its current dividend translates to a 2.52% yield.
PEP's net revenue came in at $21.97 billion for the third quarter that ended September 3, 2022, up 8.8% year-over-year. Its gross profit increased 8% year-over-year to $11.66 billion. Also, its operating profit came in at $3.53 billion, up 6.1% year-over-year.
Analysts expect PEP's revenue to increase 7.1% year-over-year to $85.09 billion in 2022. Its EPS is estimated to grow 8.3% year-over-year to $6.78 in 2022. It has surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 11.8% to close the last trading session at $181.09.
PEP's POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
PEP has an A grade for Quality and a B for Growth and Stability. It is ranked #9 out of 33 stocks in the A-rated Beverages industry. Click here for the additional POWR Ratings for Value, Sentiment, and Momentum for PEP.
Darden Restaurants, Inc. (DRI)
DRI, through its subsidiaries, owns and operates full-service restaurants in the United States and Canada. It serves as a full-service restaurant company through four segments: Olive Garden, LongHorn Steakhouse, Fine Dining, and Other Business.
On December 16, 2022, Rick Cardenas, President & CEO, said, "I am pleased with our results this quarter. All of our brands performed at a high level by remaining focused on our Back-to-Basics Operating Philosophy anchored in food, service, and atmosphere."
Over the last three years, DRI's dividend payouts have grown at 12.3% CAGR. While DRI's four-year average dividend yield is 2.57%, its current dividend translates to a 3.49% yield.
DRI's total sales came in at $2.49 billion for the second quarter that ended November 27, 2022, up 9.4% year-over-year. Its EPS came in at $1.52, up 2.7% year-over-year.
DRI's revenue is expected to increase by 8% year-over-year to $10.4 billion in 2023. Its EPS is expected to grow 5.7% year-over-year to $7.81 in 2023. Over the past six months, the stock has gained 19.3% to close the last trading session at $137.31.
DRI's overall B rating equates to a Buy in our POWR Ratings system. The stock also has a B grade for Quality. It is ranked #10 out of 46 stocks in the B-rated Restaurants industry.
Beyond what is stated above, we've also rated DRI for Value, Stability, Sentiment, Growth, and Momentum. Get all DRI ratings here.
UNH shares were trading at $524.09 per share on Friday morning, down $3.00 (-0.57%). Year-to-date, UNH has gained 5.71%, versus a -19.03% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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