The Federal Reserve’s aggressive rate hikes in the past year to curb inflation have proven minimally successful. However, inflation is still far above the Fed’s target of 2%. Furthermore, the recent collapse of the banking system has made it even more challenging to achieve this target.
Hence, quality stocks Johnson & Johnson (JNJ), AbbVie Inc. (ABBV), and International Business Machines Corporation (IBM) could be ideal investments in the face of any unforeseen economic challenges.
Almost a year ago, the Federal Open Market Committee (FOMC) initiated a series of what would be eight interest rate hikes to control multi-decade high inflation. Despite some progress made by the Fed in reducing inflation to the current rate of 6%, it is still considerably distant from attaining its 2% target.
Recent strong economic data showing jobs growth and high inflation levels sets the table for higher and probably faster rate increases. However, the central bank’s efforts to combat stubborn inflation have been complicated by the recent regional bank failures.
Moreover, the turbulence in the broader financial system has led Goldman Sachs (GS) to revise its 2023 economic growth forecast to 1.2%, a 0.3-percentage-point decrease due to the recent reduction in lending from small and medium-sized banks.
According to GS economists, the adoption of stricter lending standards could have an adverse effect on overall demand, which could potentially hinder Gross Domestic Product (GDP) growth that has already been affected by a series of tightening measures implemented in the previous quarters,
Amid the uncertain economic landscape, let's discuss what makes quality stocks JNJ, ABBV, and IBM stocks ideal investments.
Johnson & Johnson (JNJ)
JNJ is a diversified healthcare product conglomerate. It researches, develops, manufactures, and sells a broad range of medical products. The company’s segments include Consumer Health; Pharmaceutical; and MedTech. Its primary focus is on human health and well-being products.
On March 6, 2023, JNJ’s Janssen Pharmaceutical Companies announced that the Phase 3 A DUE study revealed significant improvement in pulmonary hemodynamics in Pulmonary Arterial Hypertension (PAH) patients with an investigational once-daily, single tablet combination therapy compared to macitentan and tadalafil monotherapies. Such findings pave the way for enhanced patient care, which should benefit the company.
Also, on November 1, 2022, JNJ and Abiomed Inc., a pioneer in ground-breaking heart, lung, and kidney support technologies, announced their agreement under which JNJ would obtain all of ABMD’s outstanding shares through a tender offer, with a cash upfront payment of $380 per share.
ABMD’s skilled workforce, solid clinical relationships, specialized cardiovascular portfolio, and the extensive pipeline is expected to bolster JNJ’s MedTech offerings and help the company achieve its strategic goals related to pharmaceuticals and medical technology.
JNJ’s U.S. sales increased 2.9% year-over-year to $12.52 billion for the fiscal fourth quarter that ended December 31, 2022. Its adjusted earnings before the provision for taxes on income grew 17% from the year-ago value to $7.42 billion. In addition, the company’s adjusted net earnings and EPS rose 9.5% and 10.3% year-over-year to $6.22 billion and $2.35, respectively.
The consensus revenue estimate of $97.63 billion for the fiscal year ending December 2023 reflects a 2.8% year-over-year improvement. Likewise, the consensus EPS estimate of $10.51 for the ongoing year indicates a 3.6% rise from the prior year. Moreover, the company surpassed its consensus EPS estimates in all four trailing quarters, which is impressive.
Shares of JNJ have marginally plunged over the past five days to close the last trading session at $152.38.
JNJ’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates 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.
The stock has an A grade for Stability and a B for Value and Quality. In the 166-stock Medical - Pharmaceuticals industry, it is ranked #7.
Beyond what we stated above, we also have JNJ’s ratings for Growth, Sentiment, and Momentum. Get all JNJ ratings here.
AbbVie Inc. (ABBV)
ABBV is a diverse research-based biopharmaceutical enterprise. It researches, develops, and commercializes medications and therapies. The company provides products across various therapeutic fields, including eye care, neuroscience, aesthetics, and immunology, among other key categories.
On February 2023, ABBV and Capsida Biotherapeutics Inc. announced their extended strategic partnership to develop genetic medicines for patients suffering from severe eye diseases that lack effective treatments. By joining hands with Capsida, ABBV would significantly broaden its capabilities, ultimately helping it bring breakthrough therapies to market.
On January 10, ABBV and Anima Biotech disclosed their collaborative effort to identify and advance mRNA biology modulators for three targets encompassing Oncology and Immunology.
The partnership would allow ABBV to leverage Anima’s cutting-edge technology platform and profound understanding of mRNA biology, reinforcing ABBV's already top-tier capabilities in drug discovery and development that aim to deliver meaningful patient outcomes.
The company’s net revenues grew 1.6% year-over-year to $15.12 billion in the fourth quarter that ended December 31, 2022. Its operating earnings rose 8.4% from the prior year’s period to $5.50 billion. Also, ABBV’s non-GAAP net earnings increased 16.5% from the year-ago value to $6.42 billion, while its adjusted EPS rose 16.9% from the previous year’s quarter to $3.60.
Analysts expect ABBV’s EPS to increase 12.1% year-over-year to $2.87 for the second quarter (ending June 2023). The company’s revenue for the same quarter is expected to grow 10.2% year-over-year to $13.37 billion. The stock has gained 11.5% over the past nine months to close the last trading session at $154.22.
ABBV’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
ABBV has a Quality grade of A and a Stability grade of B. It ranks #15 out of 166 stocks in the Medical - Pharmaceuticals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see ABBV’s ratings for Value, Growth, Sentiment, and Momentum here.
International Business Machines Corporation (IBM)
IBM is a multinational tech giant that offers hybrid cloud and artificial intelligence technologies. It provides integrated products and solutions that leverage data and information technology in various business processes and industries. The company’s segments include Software; Consulting; Infrastructure; and Financing.
On March 2, IBM and Cohesity announced their collaboration to bolster data security and resiliency, to improve enterprises’ ability to counteract the detrimental effects of cyberattacks and breaches. The company intends to launch IBM Storage Defender, enabling companies to take advantage of their existing IBM investments while substantially streamlining operations and lowering operating costs.
Also, on February 8, the company declared its acquisition of StepZen Inc, facilitating developers to build GraphQL APIs more efficiently and with less code. With the growing trend of hybrid cloud, data is dispersed across multiple locations, and APIs serve as the primary link between diverse data sources and applications.
By acquiring StepZen, IBM could augment its API development capabilities and offer customers a more streamlined approach to building APIs and integrating their data sources.
IBM’s Software revenue increased 2.8% year-over-year to $7.29 billion in the fourth quarter that ended December 31, 2022. Its gross profit grew 1.4% from the previous year’s quarter to $9.63 billion. Also, its income from continuing operations rose 16.5% from the year-ago value to $2.87 billion.
Additionally, the company’s net income and EPS of common stock came in at $2.71 billion and $2.96, up 16.3% and 15.2% year-over-year, respectively.
The consensus revenue estimate of $62.72 billion for the fiscal year ending December 2023 reflects a 3.6% year-over-year improvement. Likewise, the consensus EPS estimate of $9.48 for the current year indicates a 3.8% rise from the previous year. Moreover, the company surpassed its consensus revenue estimates in all four trailing quarters.
The stock has marginally plummeted intraday to close the last trading session at $123.69.
IBM’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has a B grade for Growth and Quality. Within the Technology - Services industry, it ranks #24 of 82 stocks.
To see additional POWR Ratings for Value, Stability, Sentiment, and Momentum for IBM, click here.
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JNJ shares were trading at $153.51 per share on Monday afternoon, up $1.13 (+0.74%). Year-to-date, JNJ has declined -12.47%, versus a 2.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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