The U.S. stocks have pulled out to a strong start in 2023, with January’s rally supported by recent signs that inflation may have peaked. Growing signs of slowing consumer spending should help drag down inflation further. Investors are betting that the Fed will be able to slow its rate hikes and even possibly lower interest rates by the end of 2023.
The market is currently pricing a 25-basis-point rate hike at tomorrow’s Federal Reserve meeting. Moreover, the U.S. Gross Domestic Product (GDP) rose at a 2.9% annualized pace in the fourth quarter, slightly better than the Dow Jones estimate of 2.8%.
Jim Baird, chief investment officer at Plante Moran Financial Advisors, said, “Held aloft by resilient consumer spending, the economy expanded at a solid pace late last year, but remains vulnerable to a more pronounced slowdown in the coming quarters.”
Despite the upbeat performance, many economists believe a recession is a strong possibility this year. According to Bankrate’s Fourth-Quarter Economic Indicator survey, the U.S. economy has a 64% chance of entering a recession this year.
In addition, although inflation is showing signs of easing, the Federal Reserve remains committed to bringing inflation down to its desired 2% target. The tightening of monetary policy is expected to lead to an economic slowdown this year.
Given this backdrop, it could be wise to invest in fundamentally strong stocks Pfizer Inc. (PFE), Rio Tinto Group (RIO), and Lockheed Martin Corporation (LMT) that could help you beat the market in 2023.
Pfizer Inc. (PFE)
PFE specializes in biopharmaceutical products globally. Its portfolio includes medicines and vaccines served to wholesalers, retailers, healthcare providers, government agencies, pharmacies, and local communities.
On January 17, 2023, PFE expanded its ‘An Accord for a Healthier World’ product offering to include the full portfolio for greater benefit to 1.2 billion people in 45 lower-income countries. With this, the company now expands its initial offering under the Accord to include off-patent products, bringing the total offering from 23 products to around 500 products.
On December 29, 2022, PFE announced positive top-line results from the Phase 3 BENEGENE-2 study evaluating fidanacogene elaparvovec, an investigational gene therapy, for the treatment of adult males with moderate to severe hemophilia B.
Adam Cuker, M.D. Penn Comprehensive and Hemophilia Thrombosis Program, said, “The BENEGENE-2 data demonstrate the promise of this gene therapy candidate as a potential one-time option for people living with hemophilia B as a means of reducing the clinical and treatment burden over the long term.”
In the same month, the company increased the quarterly dividend on its common stock to $0.41 per share for the first quarter, payable on March 3, 2023. Backed by the solid financials, this would mark the 337th consecutive quarterly dividend paid by PFE.
Also, its four-year average dividend yield is 3.63%, and its forward annual dividend of $1.64 translates to a 3.75% yield on the current price level. PFE’s dividends have grown at 5.2% and 5.5% CAGRs over the past three and five years, respectively. In addition, it has a record of 12 consecutive years of dividend growth.
PFE’s income from continuing operations increased 5.8% year-over-year to $8.62 billion in the fiscal third quarter (ended September 2022). Its non-GAAP net income grew 39.7% from the year-ago value to $10.17 billion. The company’s non-GAAP EPS increased 40.2% from the year-ago value to $1.78.
The consensus EPS estimate of $6.51 for the fiscal year 2022 (ended December 31, 2022) represents a 47.3% improvement year-over-year. The consensus revenue estimate of $100.38 billion for the last year indicates a 23.5% increase from the prior-year period. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past three months, the stock has lost 8.2% to close its last trading day at $43.55.
PFE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has an A grade for Value and a B for Growth and Quality. Out of 170 stocks in the Medical – Pharmaceuticals industry, it is ranked #6. Click here to see the additional POWR Ratings of PFE (Momentum, Stability, and Sentiment).
Rio Tinto Group (RIO)
London-based mining and metals company RIO is involved in the exploration and production of materials globally through four segments: Iron Ore; Aluminum; Copper; and Minerals. Its business also includes diamond mining, sorting and marketing, and lithium exploration.
On December 16, 2022, RIO announced the completion of its acquisition of Turquoise Hill Resources Ltd (TRQ) for an approximate consideration of $3.10 billion. Through this acquisition, RIO would simplify its ownership of the world-class Oyu Tolgoi mine in Mongolia, significantly strengthening its copper portfolio.
During the first half of the fiscal year 2022, RIO delivered solid financial results with underlying EBITDA of $15.60 billion, free cash flow of $7.15 billion, and attributable net earnings of $8.91 billion. Also, its underlying EPS came in at $5.32 for the same period. As a result, the company could pay out 50% of its earnings as an interim dividend of $4.30 billion, the second highest in its history.
RIO has a four-year average dividend yield of 10.57%, and its annual dividend yields 6.77% at the current price level. Its dividend payouts have grown at a 27.4% CAGR over the past three years and 23.7% over the past five years.
Shares of RIO have gained 49.4% over the past three months to close the last trading session at $78.93.
RIO’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
It also has a B grade for Value, Stability, and Quality. The stock is ranked #7 out of the 37 stocks in the Industrial - Metals industry. To see the other ratings of RIO for Growth, Momentum, and Sentiment, click here.
Lockheed Martin Corporation (LMT)
Security and aerospace company LMT focuses on the research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
On January 26, 2023, the company’s Board of Directors authorized a first-quarter 2023 dividend of $3.00 per share, payable on March 24, 2023. LMT’s four-year average dividend yield is 2.59%, and its current dividend of $12 translates to a 2.61% yield. Its dividend payouts have grown at CAGRs of 8.2% and 8.9% over the past three and five years, respectively. Also, it has a record of 20 years of dividend growth.
On January 24, the company announced the successful first flight of the F-16 Block 70 aircraft. OJ Sanchez, vice president, Integrated Fighter Group, said, “This milestone demonstrates LMT’s commitment to advancing this program and getting this much-needed aircraft and its advanced 21st Century Security capabilities to the war fighter.”
LMT’s net sales for the fiscal fourth quarter (ended December 31, 2022) increased 7.1% year-over-year to $18.99 billion. The company’s non-GAAP net earnings and non-GAAP EPS for the period amounted to $1.68 billion and $6.32, representing 1.7% and 7.9% year-over-year, respectively. In addition, its total assets increased 3.9% year-over-year to $52.88 billion for the fiscal year that ended December 31, 2022.
Analysts expect LMT’s EPS and revenue to increase 3.8% and 3.1% year-over-year to $27.91 and $67.72 billion, respectively, in the fiscal year 2024 (ending December 2024). It surpassed the EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 17.2% to close the last trading session at $460.59.
LMT’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B which equates to a Buy in our proprietary rating system.
It has a B grade for Quality. Among 74 stocks in the Air/Defense Services industry, it is ranked #12. Click here to see the other ratings of LMT for Growth, Value, Momentum, Stability, and Sentiment.
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PFE shares were trading at $43.48 per share on Tuesday afternoon, down $0.07 (-0.16%). Year-to-date, PFE has declined -14.37%, versus a 5.60% 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.
3 Stocks That Could Help You Beat the Market in 2023 StockNews.com
