Last year, the Federal Reserve’s seven interest rate hikes finally showed results, as the Consumer Price Index (CPI) for December came on par with analyst estimates, rising 6.5% year-over-year and declining 0.1% over the prior month. This marks the third consecutive month witnessing a year-over-year decline in inflation.
Inflation was down considerably from the highs of June last year when it rose 9.1% year-over-year. Although inflation shows signs of cooling, the jobs market remains tight as the U.S. jobless claims for the week ended December 31, 2022, fell to their lowest level in three months.
Minutes from the Fed’s policy meeting in December showed that the central bank officials expect higher interest rates to remain this year until more progress is made on bringing inflation down to its 2% target. Therefore, the economy and the stock market are expected to remain under pressure.
When faced with market uncertainty, investors must consider adding fundamentally strong stocks whose businesses are well insulated against an economic downturn due to the inelastic demand for their products and services.
To that end, it could be wise to buy fundamentally strong stocks AbbVie Inc. (ABBV), The Coca-Cola Company (KO), and Centene Corporation (CNC) for the long term.
AbbVie Inc. (ABBV)
Biopharmaceutical company ABBV is engaged in developing, manufacturing, commercializing, and selling medicines and therapies. The company is present in various therapeutic categories like immunology, oncology, aesthetics, neuroscience, and women's health products.
On October 22, 2022, ABBV acquired DJS Antibodies Ltd., a privately held UK-based biotechnology company involved in discovering and developing antibody medicines that target difficult-to-drug disease-causing proteins, such as G protein-coupled receptors (GPCRs).
“This acquisition will deliver new capabilities to enhance our current antibody research activities, an opportunity to strengthen our immunology portfolio, and provide a strong foothold for expanded research efforts in the dynamic bioscience hub in Oxford, UK,” said Jonathon Sedgwick, Ph.D., ABBV’s VP and Global head of discovery research.
ABBV’s annual dividend of $5.92 yields 3.89% on the current share price. The company’s dividend payouts have increased at a 9.2% CAGR over the past three years and a 16.9% CAGR over the past five years. It has increased its dividend for 51 consecutive years.
In terms of the trailing-12-month gross profit margin, ABBV’s 69.83% is 26.4% higher than the 55.24% industry average. Likewise, its 51.54% trailing-12-month EBITDA margin is significantly higher than the industry average of 3.73%. Furthermore, the stock’s 0.40% trailing-12-month asset turnover ratio is 17.9% higher than the industry average of 0.34%.
ABBV’s net revenues increased 3.3% year-over-year to $14.81 billion in the third quarter ended September 30, 2022. The company’s operating income increased 6.9% year-over-year to $4.60 billion. Its adjusted after-tax earnings increased 29.1% year-over-year to $6.53 billion. Also, its adjusted EPS came in at $3.66, representing an increase of 29.3% year-over-year.
For the quarter ending December 31, 2022, ABBV’s EPS and revenue are expected to increase 10.4% and 2.9% year-over-year to $3.65 and $15.32 billion, respectively. It has surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 10.9% to close the last trading session at $152.22.
ABBV’s POWR Ratings reflect solid prospects. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 166 stocks within the Medical – Pharmaceuticals industry. It has an A grade for Quality and a B for Growth and Value. Click here to see the other ratings of ABBV for Momentum, Stability, and Sentiment.
The Coca-Cola Company (KO)
Famous beverage company KO is engaged in manufacturing, marketing, and selling various non-alcoholic beverages worldwide. It provides sparkling soft drinks, enhanced water, juice, dairy, and syrups. In addition, it sells products under Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero Sugar, and Fanta brands.
The company paid a dividend of 44 cents to shareholders on December 15, 2022. It has increased its dividend for 61 consecutive years. Its annual dividend of $1.76 yields 2.88% on the current share price. The company’s dividend payouts have increased at a 3.2% CAGR over the past three years and a 3.5% CAGR over the past five years.
In terms of the trailing-12-month gross profit margin, KO’s 58.49% is 84.8% higher than the 31.66% industry average. Likewise, its 31.96% trailing-12-month EBITDA margin is 175.6% higher than the industry average of 11.59%. Furthermore, the stock’s 3.34% trailing-12-month Capex/Sales is 4.9% higher than the industry average of 3.19%.
KO’s non-GAAP net operating revenues increased 10.2% year-over-year to $11.06 billion for the third quarter ended September 30, 2022. Its non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion. The company’s non-GAAP net income increased 6.7% year-over-year to $3.01 billion. Also, its non-GAAP EPS came in at $0.69, representing an increase of 6.2% year-over-year.
Analysts expect KO’s revenue for the quarter ending December 31, 2022, to increase 4.3% year-over-year to $9.88 billion. Its EPS for fiscal 2022 is expected to increase 7.3% year-over-year to $2.49. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 11% to close the last trading session at $61.21.
KO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Stability, Sentiment, and Quality. It is ranked #17 out of 36 stocks within the A-rated Beverages industry. Click here to see the other ratings of KO for Growth, Value, and Momentum.
Centene Corporation (CNC)
CNC operates as a multi-national healthcare enterprise that provides programs and services to underinsured and uninsured individuals. It operates through two segments, Managed Care and Specialty Services.
On December 5, 2022, CNC announced that it had completed the divestiture of Magellan Rx to Prime Therapeutics LLC (Prime). CNC’s CEO Sarah London said, “We are pleased to continue delivering on our value creation plan with the closing of this transaction, positioning us to remain focused on our core business and strategic priorities on behalf of shareholders.”
In terms of the trailing-12-month levered FCF margin, CNC’s 4.62% compares to the negative 2.39% industry average. Likewise, its 4.93% trailing-12-month EBITDA margin is 32.4% higher than the industry average of 3.73%. Furthermore, the stock’s 1.68% trailing-12-month asset turnover ratio is 396.5% higher than the industry average of 0.34%.
CNC’s total revenues increased 10.7% year-over-year to $35.87 billion for the third quarter ended September 30, 2022. The company’s adjusted net earnings rose 1.3% year-over-year to $755 million. In addition, its adjusted EPS came in at $1.30, representing a 3.2% increase from the prior-year quarter.
Analysts expect CNC’s revenue for the quarter ending December 31, 2022, to increase 8.7% year-over-year to $35.40 billion. Its EPS for fiscal 2022 is expected to increase 11.1% year-over-year to $5.72. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 5.2% to close the last trading session at $78.18.
It is no surprise that CNC has an overall rating of B, which translates to a Buy in our proprietary rating system. Within the A-rated Medical - Health Insurance industry, it is ranked #6 out of 11 stocks. The company has a B grade for Value and Quality.
Click here to see the additional ratings of CNC for Growth, Momentum, Stability, and Sentiment.
ABBV shares were trading at $152.95 per share on Friday morning, up $0.73 (+0.48%). Year-to-date, ABBV has declined -4.46%, versus a 3.43% 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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