With ongoing mania regarding the Fed’s stance on monetary policy, this year’s early rally seems to be fading out. While positive economic data depicts the economy’s resilience, surprisingly high inflation has renewed fears of the Fed’s potential interest rate hikes in the coming months.
Amid this, it could be wise to scoop up fundamentally strong stocks, Johnson & Johnson (JNJ), AGCO Corporation (AGCO), and TravelCenters of America Inc. (TA), that look well-positioned to help grow your portfolio over the next decade.
Despite a solid start to the year, the major indexes are on pace for their second negative month in three as inflation and expectations of a more challenging economic environment weigh on investors’ sentiments.
While strong retail sales and employment numbers in January reflected economic resilience, traders continued to digest a bigger-than-expected increase in the recent reading for Personal Consumption Expenditures (PCE), the central bank’s preferred inflation gauge, which helped sink stocks and pushed treasury yields higher.
Adding to the bearish outlook, Goldman Sachs Group Inc. (GS) and Bank of America Corporation (BAC) expect the Fed to increase rates three more times this year, lifting their estimates on the backs of stronger-than-expected economic data.
However, while stocks have been under pressure this month, BAC chart analyst Stephen Suttmeier noted that the global breadth is holding up well. He said, “Strong market breadth for global equity indices suggests a broad-based rally, which is bullish in the face of a challenging market for equity investors in February.”
Moreover, on the bright side, defying all expectations, the U.S. economy isn’t in a recession yet as the U.S. Gross Domestic Product (GDP) growth remains robust. Further, the Consumer Price Index (CPI) has receded from its peak of 9.1% in June to 6.4% in January.
As the market continues to weather turbulent economic data, it could be an ideal time to buy fundamentally strong stocks JNJ, AGCO, and TA before the next bull market arrives. With plenty of room for expansion, as evidenced by their past growth, these stocks should make for stable returns over the next decade.
Johnson & Johnson (JNJ)
JNJ is engaged in research and development, manufacturing, and selling healthcare products, primarily focused on human health and well-being. It offers its products to the general public, retail outlets and distributors, wholesalers, hospitals, and healthcare professionals.
Recently, CHMP gave a positive opinion for AKEEGA (niraparib and AA Tablet) plus prednisone or prednisolone for treating adult patients with BRCA1/2 gene-mutated metastatic castration-resistant prostate cancer.
In the Phase 3 MAGNITUDE study, AKEEGA significantly improved radiographic progression-free survival (rPFS) compared to the standard of care in untreated mCRPC patients.
Moreover, on February 6, JNJ announced positive topline phase 2 results for Nipocalimab in pregnant individuals at high risk for severe hemolytic disease of the fetus and newborn (HDFN). Currently, with no approved therapeutics available for treating life-threatening HDFN, such results play a vital role in delivering a potential medication for expectant mothers.
On January 3, the company declared the first-quarter dividend of $1.13 per share on its common stock, payable to shareholders on March 7, 2023. JNJ’s four-year average dividend yield is 2.60%, and its current dividend of $4.52 translates to a 2.90% yield on prevailing prices.
Its dividend payouts have grown at a 5.9% CAGR over the past three years and a 6.1% CAGR over the past five years. The company has a record of 60 years of consecutive dividend growth.
On December 22, 2022, JNJ acquired Abiomed, Inc. (ABMD), a leading medical technology provider that provides circulatory support and oxygenation. This acquisition broadens JNJ’s MedTech portfolio and should strengthen its position in high-growth MedTech segments. Additionally, the transaction is expected to accelerate JNJ’s near and long-term sales and earnings growth.
JNJ’s revenue and EBITDA grew at a 4.9% CAGR and a 5% CAGR over the past three years, respectively. Its net income has grown at a 5.9% CAGR over the same period.
During the fiscal fourth quarter (ended December 2022), JNJ’s sales to customers amounted to $23.71 billion. The company’s adjusted net earnings grew 9.5% from the same period in the prior year to $6.22 billion, while its adjusted EPS came in at $2.35, representing a 10.3% increase year-over-year.
Street expects JNJ’s revenue to increase marginally year-over-year to $23.59 billion for the fiscal first quarter (ending March 31, 2023). Its EPS is expected to increase marginally from the prior-year period to $2.62 in the next quarter ending June 2023. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Over the past six months, the stock has gained 5.3% to close the last trading session at $155.63.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Value, Sentiment, and Quality. The stock is ranked #5 of 174 stocks in the Medical - Pharmaceuticals industry. Click here to see the other ratings of JNJ for Growth and Momentum.
AGCO Corporation (AGCO)
AGCO is engaged in manufacturing and distributing agricultural equipment and related replacement parts globally. Its brand products include Challenger, Fendt, GSI, Massey Ferguson, and Valtra, supported by its Fuse precision agriculture solutions.
On January 20, AGCO announced a quarterly dividend of $0.24 per common share, payable on March 15, 2023. The company’s annual dividend of $0.96 yields 0.68% at the current price level. Its dividend payouts have increased at a 14.5% CAGR over the past three years and an 11% CAGR over the past five years. AGCO has a record of nine years of consecutive dividend growth.
Over the past three years, AGCO’s EBITDA and net income grew at 25.6% and 92.3% CAGRs, respectively. Its EPS grew at a 93.8% CAGR over the same period.
After delivering a solid performance in the fiscal year 2022, fueled by robust demand for its industry-leading products coupled with continued solid global industry demand, Eric Hansotia, AGCO’s Chief Executive Officer, remains optimistic about the growth outlook in 2023.
He stated, “We assume global market conditions will remain healthy, as favorable farm economics allow farmers to continue to invest in new more productive equipment and technology upgrades. We remain focused on growing our high-margin precision ag business, globalizing the full-line of our Fendt branded products and expanding our parts and service business.”
AGCO’s revenue increased 23.6% year-over-year to $3.90 billion for the fourth quarter that ended December 31, 2022. The company’s gross profit rose 37.8% year-over-year to $940.60 billion. Its adjusted income from operations grew 71.9% year-over-year to $467.50 million, while its adjusted net income was $335.30 million, up 44.5% year-over-year.
Additionally, its non-GAAP EPS came in at $4.47, representing a 45.1% increase from the prior-year quarter.
Analysts expect AGCO’s revenue and EPS for the first quarter (ending March 31, 2023) to increase 16.8% and 12.9% year-over-year to $3.14 billion and $2.70, respectively. Furthermore, the company surpassed the consensus EPS estimates in each of the trailing four quarters, which is promising.
The stock has gained 2.2% over the past month to close the last trading session at $18.97.
AGCO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Value and a B for Sentiment. It has topped the 27-stock Agriculture industry.
Beyond what we stated above, we have also rated AGCO for Momentum, Stability, and Quality. Get all AGCO ratings here.
TravelCenters of America Inc. (TA)
TA operates travel centers in the United States and Canada under TravelCenters of America, TA, TA Express, Petro Stopping Centers, and Petro brand names. Its offers diesel and gasoline fuel, truck maintenance and repair, full-service and quick-service restaurants, travel stores, car and truck parking, and other services.
On January 30, TA announced an agreement with Electrify America, an open direct current fast-charging network, to offer electric vehicle charging at select TA/Petro locations, with the first stations planned to be deployed in 2023. With the combined goal of installing DC fast chargers nationwide to meet the needs of EV drivers, this partnership should benefit both companies significantly.
TA’s revenue grew at 18.6% and 13.9% CAGRs over the past three and five years, respectively. Its EBIT has grown at a CAGR of 202.5% over the past three years.
In the third quarter that ended September 30, 2022, TA’s revenues increased 44.9% year-over-year to $2.81 billion. Its income from operations grew 43.4% from the year-ago value to $57.15 million. Its adjusted EBITDA rose 36% from the year-ago value to $88.60 million.
The company’s adjusted net income and net income attributable to common stockholders came in at $37.60 million and $2.54, up 69.4% and 67.1% from the prior-year period, respectively.
The consensus EPS estimate of $1.39 for the fourth quarter (ended December 31, 2022) represents a 56.5% improvement year-over-year. The consensus revenue estimate of $2.65 billion for the to-be-reported quarter represents a 30.5% increase from the previous-year quarter. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
TA has gained 121.2% over the past nine months and 88.4% year-to-date to close its last trading session at $84.35.
It is no surprise that TA has an overall POWR Rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Growth and B for Value. In the Specialty Retailers industry, it is ranked #10 out of 45 stocks.
Click here to see the additional POWR Ratings of TA (Momentum, Stability, Sentiment, and Quality).
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JNJ shares were trading at $154.18 per share on Tuesday morning, down $1.45 (-0.93%). Year-to-date, JNJ has declined -12.09%, versus a 3.96% 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.
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