The stock market has endured a challenging year due to various macroeconomic and geopolitical concerns. The Fed’s resolve to bring inflation down to its 2% target led to a broad-based market correction. The central bank’s aggressive interest rate hikes have triggered sell-offs across major asset classes and have led many analysts to believe that the economy will enter a recession next year.
The Fed’s six rate hikes finally seem to bear fruit as inflation eased in October. The consumer price index (CPI) rose 0.4% sequentially and 7.7% year-over-year last month, both coming lower than analyst estimates. The recently released minutes from the Fed’s policy meeting showed signs that the central bank might slow down the pace of rate hikes.
According to Goldman Sachs Research, the U.S. economy is forecasted to narrowly avoid a recession as inflation cools off and unemployment climbs slightly. The investment bank’s economists believe there is a 35% probability of the U.S. tipping into a recession over the next year. This estimate is below the median of 65% among forecasters in a Wall Street Journal survey.
Given this backdrop, investors could look to buy fundamentally strong stocks Ambev S.A. (ABEV), Cardinal Health, Inc. (CAH), and Universal Logistics Holdings, Inc. (ULH) to generate stable returns.
Ambev S.A. (ABEV)
Headquartered in Sao Paulo, Brazil, ABEV is engaged in the brewing sector. The company produces, distributes, and sells beer, carbonated soft drinks, and other non-alcoholic and non-carbonated beverages across the Americas. It markets products under Adriatica, Brahma, Leffe, Budweiser, Corona, PepsiCo, and Lipton.
ABEV’s revenue and EPS have grown at 14.4% and 5.8% CAGRs, respectively, over the past three years.
ABEV’s current dividend yield is 2.86%, and its four-year average yield is 3.44%.
ABEV’s net revenue increased 11.3% year-over-year to R$20.59 billion ($3.82 billion) for the third quarter ended September 30, 2022. Its gross profit increased 7.6% year-over-year to R$9.94 billion ($1.84 billion). In addition, its normalized EBITDA increased 2.4% year-over-year to R$5.60 billion ($1.04 billion). Also, its normalized EPS came in at R$0.20.
Analysts expect ABEV’s EPS and revenue for the quarter ending December 31, 2022, to increase 0.2% and 7.6% year-over-year to $0.05 and $4.63 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. The stock has gained 4.6% year-to-date to close the last trading session at $2.93.
ABEV’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a 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 for Quality and a B for Sentiment. Within the A-rated Beverages industry, it is ranked #11 out of 34 stocks. To see the other ratings of ABEV for Growth, Value, Momentum, and Stability, click here.
Cardinal Health, Inc. (CAH)
CAH provides various healthcare services and products in the United States, Canada, Europe, and Asia. The company operates through two segments: Pharmaceutical and Medical. It offers customized solutions for hospitals, healthcare systems, pharmacies, clinical laboratories, and at-home patients.
On September 15, 2022, CAH and PayrHealth announced a collaboration to help specialty physician practices simplify payor contracting and maximize financial performance. CAH’s VP of Clinical Strategy & Technology Solutions, Amy Valley, said, “We are very excited to partner with PayrHealth to bring meaningful efficiencies and cost savings to practices, so they can focus on patient care.”
CAH’s revenue and EPS have grown at 14.4% and 5.8% CAGRs, respectively, over the past three years.
CAH’s current dividend yield is 2.53%, and its four-year average yield is 3.67%. Its dividend payouts have grown a 1% CAGR over the past three years and 1.6% CAGR over the past five years.
For the fiscal first quarter ended September 30, 2022, CAH’s revenue increased 12.8% year-over-year to $49.60 billion. The company’s net cash provided by operating activities came in at $23 million, compared to net cash used in operating activities of $646 million in the year-ago period. Also, its cash and cash equivalents increased 41.8% year-over-year to $3.49 billion at the end of the period.
For the quarter ending March 31, 2023, CAH’s EPS is expected to increase 3.4% year-over-year to $1.50. Its revenue for the quarter ending December 31, 2022, is expected to increase 11.2% year-over-year to $50.54 billion. Over the past year, the stock has gained 64.8% to close the last trading session at $78.46.
CAH’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #3 out of 79 stocks in the Medical – Services industry. It has a B grade for Growth and Value. Click here to see the other ratings of CAH for Momentum, Stability, Sentiment, and Quality.
Universal Logistics Holdings, Inc. (ULH)
ULH provides transportation and logistics solutions in the United States, Mexico, Canada, and Colombia. It offers truckload services, domestic and international freight forwarding, customs brokerage services, and final mile and ground expedite services.
ULH’s revenue and net income have grown at 10% and 58.7% CAGRs, respectively, over the past three years.
ULH’s current dividend yield is 1.2%, and its four-year average yield is 2.01%. Its dividend payouts have grown 8.5% CAGR over the past five years.
ULH’s total operating revenues rose 13.5% year-over-year to $505.69 million for the third quarter, October 1, 2022. Its net income increased 371.9% year-over-year to $48.48 million. In addition, its EPS came in at $1.84, representing an increase of 384.2% year-over-year.
Analysts expect ULH’s EPS and revenue for fiscal 2022 to increase 90.3% and 15.4% year-over-year to $6.40 and $2.02 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 91.1% year-to-date to close the last trading session at $36.05.
ULH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
Within the A-rated Air Freight & Shipping Services industry, it is ranked first out of 17 stocks. It has an A grade for Growth and Sentiment and a B for Value, Momentum, and Stability. To see the rating of Quality for ULH, click here.
ABEV shares were unchanged in premarket trading Tuesday. Year-to-date, ABEV has gained 4.64%, versus a -15.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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