The Federal Reserve’s ninth consecutive rate hike to keep inflation under control is expected to keep the stock market under pressure. However, there is no reason to stay away from the stock market, missing the opportunity to invest in quality and stable stocks Oracle Corporation (ORCL), CVS Health Corporation (CVS), and Humana Inc. (HUM) at attractive prices.
Before discussing why these stocks could survive the potential economic trouble and deliver stable returns, let’s see what’s affecting the market sentiment.
As widely expected, the Fed announced another 25-basis-point rate hike yesterday, bringing the federal funds rate to a new range of 4.75% to 5%, the highest since October 2007.
The central bank remains “highly attentive to inflation risks.” The Fed stated, “The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”
The recent bank failures were not enough to stop the Fed from raising interest rates this time. Fed officials said, “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain.”
With banks now looking to tighten credit and the federal funds rate likely to climb higher, the risk of a recession looms large. Amid this uncertainty, investors could seek the safety of fundamentally strong and dividend-paying stocks. Also, many such stocks are available at attractive prices.
Let’s discuss what makes ORCL, CVS, and HUM solid investments now.
Oracle Corporation (ORCL)
ORCL offers products and services that address enterprise information technology environments worldwide. The business provides Oracle application licenses, support services, and cloud-based industry solutions for a diverse range of industries. It also offers hardware products and other software choices relating to hardware.
On February 13, 2023, ORCL and Uber Technologies, Inc. (UBER) announced a seven-year strategic cloud partnership to help accelerate UBER’s innovation in bringing new products to the market and boosting profitability. This strategic partnership reflects Oracle Cloud infrastructure’s strong momentum and acceleration within the market versus other hyperscalers.
It is expected to pay a quarterly dividend of $0.40 per share on April 24, 2023. Its annual dividend of $1.60 yields 1.82% on the current share price. The company’s dividend payouts have increased at a 10.1% CAGR over the past three years and an 11% CAGR over the past five years. Its four-year dividend yield is 1.59%.
In terms of the trailing-12-month gross profit margin, ORCL’s 74.50% is 48% higher than the 50.35% industry average. Likewise, its 38.79% trailing-12-month EBITDA margin is 293.2% higher than the industry average of 9.87%. Furthermore, the stock’s 17.49% trailing-12-month levered FCF margin is 187.8% higher than the industry average of 6.08%.
For the fiscal third quarter ended February 28, 2023, ORCL’s net revenue increased 17.9% year-over-year to $12.40 billion. Its adjusted operating income grew 7.7% from the year-ago period to $5.19 billion. The company’s non-GAAP net income increased 9% year-over-year to $3.38 billion. In addition, its non-GAAP EPS came in at $1.22, representing an increase of 8% year-over-year.
For the quarter ending May 31, 2023, ORCL’s EPS and revenue are expected to increase 2.7% and 15.9% year-over-year to $1.58 and $13.73 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 32.1% to close the last trading session at $87.90.
ORCL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability and Sentiment. Within the Software – Application industry, it is ranked #32 out of 135 stocks. To see the additional ratings of ORCL for Growth, Value, Momentum, and Quality, click here.
CVS Health Corporation (CVS)
CVS is a health service provider operating through four segments: Health Care Benefits; Pharmacy Services; Retail/LTC; and Corporate/Other. Its offerings include health and wellness services, health plans, pharmacy services, and prescription drug coverage.
On February 8, 2023, CVS announced that it had entered into a definitive agreement to acquire Oak Street Health for approximately $10.60 billion.
CVS Health President and CEO Karen S. Lynch said, “Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution. Enhancing our value-based offerings is core to our strategy as we continue to redefine how people access and experience care that is more affordable, convenient and connected.”
CVS is expected to pay a quarterly dividend of $0.605 per share on May 1, 2023. Its annual dividend of $2.42 yields 3.25% on the current share price. The company’s dividend payouts have increased at a 4.1% CAGR over the past three years and a 2.4% CAGR over the past five years. Its four-year dividend yield is 2.74%.
In terms of the trailing-12-month net income margin, CVS’ 1.29% compares to the negative 6.12% industry average. Likewise, its 6.11% trailing-12-month EBITDA margin is 80.4% higher than the industry average of 3.39%. Furthermore, the stock’s 3.74% trailing-12-month levered FCF margin compares to the negative 3.99% industry average.
For the fourth quarter ended December 31, 2022, CVS’ total revenue increased 9.5% year-over-year to $83.85 billion. The company’s operating income rose 62.3% over the prior-year quarter to $3.62 billion. Its net income attributable to CVS increased 76.3% year-over-year to $2.30 billion. In addition, its adjusted EPS came in at $1.99, increasing marginally year-over-year.
For the quarter ending March 31, 2023, CVS’ revenue is expected to increase 5.3% year-over-year to $80.87 billion. Its EPS for the quarter ending June 30, 2023, is expected to increase 0.3% year-over-year to $2.41. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 14.7% to close the last trading session at $74.41.
CVS’ POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CVS is ranked first out of 4 stocks within the B-rated Medical- Drug Stores industry. It has a B grade for Value, Stability, and Sentiment. Click here to see the other ratings of CVS for Growth, Momentum, and Quality.
Humana Inc. (HUM)
HUM is a health and well-being company that operates in the Insurance and CenterWell segments. The Insurance segment consists of Medicare benefits marketed to individuals or directly through group Medicare accounts. The CenterWell segment represents its payor-agnostic healthcare offerings, including pharmacy dispensing, provider, and home services.
On February 23, 2023, HUM announced that it would be exiting the Employer Group Commercial Medical Products business, which includes all fully insured, self-funded, Federal Employee Health Benefit medical plans and associated wellness and rewards programs.
HUM’s President and CEO Bruce D. Broussard said, “This decision enables Humana to focus resources on our greatest opportunities for growth and where we can deliver industry-leading value for our members and customers.”
HUM is expected to pay a quarterly dividend of $0.885 per share on April 28, 2023. Its annual dividend of $3.54 yields 0.71% on the current share price. The company’s dividend payouts have increased at a 12.7% CAGR over the past three years and a 14.5% CAGR over the past five years. Its four-year dividend yield is 0.65%.
In terms of the trailing-12-month net income margin, HUM’s 3.02% compares to the negative 6.12% industry average. Likewise, its 4.95% trailing-12-month EBITDA margin is 46% higher than the industry average of 3.39%. Furthermore, the stock’s 2.12x trailing-12-month asset turnover ratio is 525.3% higher than the industry average of 0.34x.
HUM’s revenues for the fourth quarter ended December 31, 2022, increased 6.6% year-over-year to $22.44 billion. The company’s adjusted consolidated pretax income increased 58.4% year-over-year to $263 million. Its adjusted EPS came in at $1.62, representing an increase of 30.6% year-over-year.
Analysts expect HUM’s EPS and revenue for the quarter ending March 31, 2023, to increase 16.3% and 10.5% year-over-year to $9.35 and $26.49 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 13.7% to close the last trading session at $498.33.
HUM’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It is ranked #3 out of 10 stocks in the A-rated Medical – Health Insurance industry. It has a B grade for Growth, Value, Sentiment, and Quality. Click here to see the other ratings of HUM for Momentum and Stability.
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ORCL shares rose $0.31 (+0.35%) in premarket trading Thursday. Year-to-date, ORCL has gained 8.32%, versus a 3.48% 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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