The Federal Reserve raised the benchmark interest rates by 75 basis points for the second straight month last week to fight the record-high inflation. Moreover, the economy contracted 0.9% in the second quarter after a 1.6% decline in the first quarter. Therefore, the odds of an economy tipping into a recession are increasing.
After posting the worst first half since 1970, the stock market indices staged a relief rally in July. However, the benchmark indexes failed to maintain their momentum in this month's first two trading sessions, with recession fears dominating investor sentiment.
“We view this as a bear market rally, which is common, occurring 1.5 times on average per bear market since 1929,” said Savita Subramanian, BofA Securities head of U.S. equity and quantitative strategy. The strategist added that August and September are traditionally weak months for stocks and further maintained the firm’s 3600 price target for the S&P 500 index.
Amid the uncertain market conditions, investors should consider investing in shares of companies with strong fundamentals, significant cash flows, and solid growth prospects, as these features help them stay resilient.
AbbVie Inc. (ABBV), Acuity Brands, Inc. (AYI), and Ingles Markets, Incorporated (IMKTA) are three such quality stocks that could help investors dodge challenging market conditions.
AbbVie Inc. (ABBV)
ABBV is a research-based biopharmaceutical company that develops, manufactures, and sells pharmaceuticals worldwide. The company offers HUMIRA, a therapy for autoimmune and intestinal diseases, SKYRIZI to treat adult plaque psoriasis, IMBRUVICA to treat chronic lymphocytic leukemia (CLL), and MAVYRET to treat patients with chronic HCV genotype 1-6 infection.
On August 2, ABBV and Sosei Group Corporation entered a new drug discovery collaboration and option-to-license agreement to discover, develop, and commercialize novel medicines targeting neurological diseases. It leverages ABBV’s extensive neuroscience expertise and Sosei’s StaR® technology and SBDD platform.
The new strategic collaboration is expected to accelerate the company’s growth by advancing a pipeline of novel medicines across neurology.
On July 26, ABBV announced that the European Commission (EC) approved RINVOQ® for treating adult patients with moderate to severely active ulcerative colitis. “We celebrate today's approval of RINVOQ by the EC as it meaningfully expands our ability to help indicated patients in need of relief from ulcerative colitis,” said Thomas Hudson, senior vice president, chief scientific officer, AbbVie.
In the fiscal 2022 second quarter ended June 30, 2022, ABBV's net revenues increased 4.5% year-over-year to $14.58 billion. Its net earnings rose 20.7% from the year-ago value to $928 million. The company's adjusted earnings per share came in at $3.37, up 11.2% year-over-year.
ABBV's trailing-12-month gross profit margin of 70.60% is 28.6% higher than the industry average of 54.90%. The stock’s trailing-12-month EBIT margin of 37.07% is 2,612.7% higher than the industry average of 1.37%.
The consensus revenue estimate of $59.17 billion for the fiscal year 2022 (ending December 2022) represents a growth of 5.4% from the previous year. The consensus EPS estimate of $13.89 for the ongoing year indicates a 9.4% year-over-year rise. It’s no surprise that ABBV has surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 18.1% over the past year to close the last trading session at $140.39.
ABBV’s POWR Ratings reflect a strong outlook. The stock 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.
ABBV has a grade of A for Quality and B for Growth and Value. It is ranked #9 of 170 stocks in the Medical - Pharmaceuticals industry. Click here to see ABBV’s POWR Ratings for Stability, Momentum, and Sentiment.
Acuity Brands, Inc. (AYI)
AYI provides lighting and building management solutions in North America and internationally. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL); the Intelligent Spaces Group (ISG). It serves electrical distributors, energy service companies, retail improvement centers, digital retailers, lighting showrooms, airports, and enterprise campuses.
In January, AYI partnered with Microsoft Corp. (MSFT) to bring new capabilities to AYI’s smart lighting controls and automation solutions. By combining the power of Microsoft Azure IoT and AI with Acuity Brands customer solutions, the companies might enable end customers to forecast and calculate the environmental and financial impacts of new lighting and building management technologies.
AYI's net sales increased 17.9% year-over-year to $1.06 billion in the fiscal 2022 third quarter ended May 31, 2022. Its gross profit rose 15.1% from the year-ago value to $445.10 million. The company’s adjusted operating profit grew 19.6% year-over-year to $418.40 million. Its adjusted EBITDA stood at $459 million, up 16.4% year-over-year.
Furthermore, the company’s adjusted net income and earnings per share came in at $313.60 million and $8.94, registering increases of 23.5% and 29.6% year-over-year, respectively.
AYI's trailing-12-month gross profit margin of 41.91% is 41.5% higher than the industry average of 29.62%. Also, its trailing-12-month net income margin of 9.43% is 40% higher than the industry average of 6.73%.
The $1.10 billion consensus revenue estimate for the fiscal 2022 fourth quarter, ending August 2022, represents an 11.2% improvement from the same period in 2021. Analysts expect AYI’s EPS for the current quarter to increase 13.5% year-over-year to $3.71. The company has topped the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 15.7% over the past month to close the last trading session at $176.75.
AYI's POWR Ratings reflect a promising outlook. The stock has an overall grade of A, which equates to a Strong Buy in our proprietary rating system.
AYI has a grade of A for Quality. It has a B grade for Growth, Value, and Sentiment. Within the Home Improvement & Goods industry, it is ranked #1 of 62 stocks. Click here to see additional POWR Ratings (Momentum and Stability) for AYI.
Ingles Markets, Incorporated (IMKTA)
IMKTA operates a chain of supermarkets in the southeast United States. The company provides food products, including grocery, frozen foods, produce, meat, and other perishables, and non-food products, such as fuel centers, pharmacies, and general merchandise. Also, it owns and operates a milk processing and packaging plant.
The company operates nearly 189 supermarkets under the brand name Ingles, nine supermarkets under Sav-Mor, 111 pharmacies, and 107 fuel stations.
In the fiscal 2022 second quarter ended March 26, 2022, IMKTA's net sales grew 16.3% year-over-year to $1.38 billion, and its gross profit improved 12.3% from the year-ago value to $348.56 million. Its income from operations rose 28% year-over-year to $95.09 million.
In addition, the company’s net income and earnings per common share – Class A came in at $68.64 million and $3.61, up 31.5% and 39.9% year-over-year, respectively.
IMKTA's trailing-12-month ROCE of 28.32% is 115% higher than the industry average of 13.18%. Likewise, its trailing-12-month ROTA of 13.11% is 175% higher than the industry average of 4.77%.
Analysts expect IMKTA's revenue for the fiscal year 2023 (ending September 2023) to come in at $4.70 billion, representing a 3% rise from the last year. Also, Street expects the company's EPS to grow 14.5% per annum over the next five years. The company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
IMKTA’s shares have gained 25.8% over the past six months and 62.4% over the past year to close the last trading session at $96.14.
IMKTA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, equating to a Strong Buy in our proprietary rating system.
IMKTA has a grade of A for Quality. The stock has a B grade for Growth, Value, and Stability. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #2 of 38 stocks. Click here to see additional POWR Ratings (Momentum and Sentiment) for IMKTA.
ABBV shares were trading at $140.99 per share on Wednesday morning, up $0.60 (+0.43%). Year-to-date, ABBV has gained 7.10%, versus a -12.81% 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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