Since March, the Fed has increased interest rates five times, bringing the benchmark rates from the near-zero level to the current 3.00%-3.25% range. Despite the Fed’s aggressive policy tightening this year, September’s Consumer Price Index (CPI) rose 8.2% year-over-year, exceeding market estimates.
Since inflation is still running hot and the economy grew in the third quarter, Fed policymakers are expected to deliver another supersized interest-rate hike this week in its two-day policy meeting. With Fed officials committed to maintaining their hawkish stance, they are laying the groundwork for borrowing costs to reach 5% by March 2023, possibly triggering a recession.
Furthermore, the central bank is expected to approve a 50 basis point rate hike in December, followed by 25 basis point increases at the following two meetings in February and March.
The latest recession probability model by Bloomberg economists shows a near certainty of an economic downturn within the next year. There is now a 100% chance of a recession in the United States by October 2023, up from 65% for the same period in the previous iteration of the model.
Given a weakening economic outlook, we think it could be wise to invest in resilient stocks Visa Inc. (V), Centene Corporation (CNC), and The Kroger Co. (KR), which are expected to navigate the market turbulence well and generate stable returns.
Visa Inc. (V)
V is a leading payments technology company that facilitates digital payments among consumers, merchants, financial institutions, strategic partners, businesses, and government entities. In addition, it provides card products, platforms, and value-added services. The company offers its products and services under Visa, Visa Electron, Interlink, VPAY, and PLUS brands.
On October 19, V partnered with Thunes to launch a cross-border send-to-wallet capability for small businesses and consumers to move money internationally to 78 digital wallet providers, reaching 1.5 billion digital wallets across 44 countries and territories. This partnership is expected to expand Visa Direct’s reach to approximately 7 billion endpoints.
On October 6, Visa Canada and TD Securities announced an innovative collaboration. TD became the first Canadian financial institution to join Visa B2B Connect, which connects corporates to over 100 countries and territories. This collaboration is expected to extend the company’s market reach and boost its profitability.
In the fiscal 2022 fourth quarter ended September 30, 2022, V's net revenues increased 19% year-over-year to $7.79 billion. Its operating income grew 17.9% from the prior-year period to $5.09 billion. The company's non-GAAP net income and earnings per share came in at $4.09 billion and $1.93, up 16% and 19% year-over-year, respectively.
In addition, net cash provided by operating activities for the fiscal year ended September 30, 2022, increased 23.8% year-over-year to $18.85 billion.
Analysts expect V’s revenue and EPS to come in at $32.04 billion and $8.31 for fiscal 2023 (ending September 2023), indicating increases of 9.3% and 10.8% year-over-year, respectively. Furthermore, the company’s revenue and EPS for the next fiscal year are expected to grow 12.1% and 12.1% year-over-year to $35.91 billion and $9.67, respectively.
The stock has gained 19.1% over the past month to close the last trading session at $209.34.
V’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. V has a grade of A for Quality and B for Stability.
Within the Consumer Financial Services industry, it is ranked #7 out of 50 stocks.
Beyond what is stated above, we’ve also rated V for Momentum, Value, Sentiment, and Growth. Get all V ratings here.
Centene Corporation (CNC)
CNC provides government-sponsored and commercial healthcare programs focusing on underinsured and uninsured individuals. It also provides education and outreach programs to inform and assist members in accessing appropriate healthcare services. The multi-national healthcare company operates through the Managed Care and Specialty Services segments.
On September 26, CNC announced that its Nebraska subsidiary, Nebraska Total Care, has been awarded the Nebraska Department of Health and Human Services (DHHS) statewide Medicaid managed care contract.
Also, on September 15, CNC announced that a new six-year contract was awarded to Superior by the Texas Health and Human Services Commission (HHSC) to provide children and youth in foster care with healthcare coverage through the STAR Health Medicaid program. These developments are expected to impact CNC’s topline positively.
For the fiscal 2022 third quarter ended September 30, 2022, CNC’s total revenues increased 11% year-over-year to $35.87 billion, driven by organic Medicaid and Medicare growth. The company’s adjusted net earnings grew 1.3% year-over-year to $755 million, and its adjusted EPS of $1.30, up 3.2% year-over-year.
Analysts expect CNC’s revenue and EPS to be $144.56 billion and $5.73 for the current fiscal year (ending December 2022), indicating increases of 14.8% and 11.2% year-over-year, respectively. Moreover, the company has an impressive earning surprise history since it has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of CNC have gained 10.3% over the past month and 19.8% over the past year to close the last trading session at $85.80.
CNC’s fundamental strength and promising outlook are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It has a grade of B for Value and Quality.
CNC is ranked #5 of 11 stocks in the A-rated Medical - Health Insurance industry.
Click here to see additional ratings of CNC for Growth, Momentum, Sentiment, and Stability.
The Kroger Co. (KR)
KR operates as a retailer in the United States. The company operates combination food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses. It runs more than 2,726 supermarkets under various banner names in 35 states and the District of Columbia.
On October 14, KR and Albertsons Companies (ACI) announced that they have entered into a definitive agreement under which the companies will merge, aiming to expand the customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience.
According to the merger agreement, KR would acquire outstanding shares of ACI common and preferred stock for an estimated total consideration of $34.10 per share. The combined company is expected to generate more than $200 billion in annual revenue.
On September 16, KR announced the official opening of a new spoke in Birmingham, Alabama, which will operate as a seamless extension of the regional fulfillment center in Atlanta, making Kroger Delivery available to more customers in the greater Birmingham area. The expansion might boost the company’s revenue over time.
KR’s sales increased 9.3% year-over-year to $34.64 billion in the fiscal 2023 second quarter ended August 13, 2022. Its operating profit increased 13.7% year-over-year to $954 million. The company’s adjusted EBITDA grew 10.9% from the year-ago value to $7.63 billion, while its adjusted EPS improved 12.5% year-over-year to $0.90.
Analysts expect KR’s revenue for the fiscal year ending January 2023 to come in at $148.32 billion, indicating an increase of 7.6% year-over-year. The company’s EPS for the current year is expected to grow 10.9% year-over-year to $4.08. The company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
KR has gained 17.8% over the past year to close the last trading session at $46.77.
KR’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
KR has a B grade in Growth, Value, and Quality. It is ranked #4 of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
Click here to see the additional POWR Ratings for KR for Momentum, Stability, and Sentiment.
V shares fell $0.89 (-0.43%) in premarket trading Monday. Year-to-date, V has declined -2.89%, versus a -17.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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