The stock market has been experiencing immense volatility, driven by growing concerns over 40-year high inflation and escalating sanctions on Russia. With strong consumer demand, this high inflationary pressure from manufacturing to distribution is raising fears of an impending recession.
Rising oil prices are another factor indicating a prospective recession. Historically, economic contractions have mostly followed oil price increases and interest rate hikes. According to co-founder of DataTrek Research, Nicholas Colas, “History shows that a 100% increase in oil prices over a year usually triggers a recession (1990, 2000, 2008). We’re not quite there yet, but we are getting closer by the day.”
Since shares of non-cyclical companies outperform the broader market during economic sluggishness, it could be wise to bet on these companies ahead of a possible recession. Irrespective of the economic conditions, near inelastic demand for their products helps them overcome market challenges and generate steady profits.
Therefore, we think non-cyclical stocks United Parcel Service, Inc. (UPS), British American Tobacco p.l.c. (BTI), McKesson Corporation (MCK), Danone S.A. (DANOY), and Sanofi S.A. (SNY), which are trading at discounts to their peers, could be solid bets now.
United Parcel Service, Inc. (UPS)
UPS in Atlanta, Ga., provides letter and package delivery, transportation, logistics, and financial services worldwide. The company operates through three segments–U.S. Domestic Package; International Package; and Supply Chain & Freight. Its services include ground freight, ocean freight, air freight, customs brokerage, and insurance.
On Dec. 10, 2021, UPS Supply Chain Solutions (UPS SCS) opened its first innovation center globally-=the UPS SCS Asia Pacific Innovation Centre in Singapore–to accelerate the digital transformation of businesses in Asia and connect them with emerging technologies in logistics. Because companies in the Asia Pacific region are pouring increasing investments into warehouse automation technologies to enhance productivity and competitiveness, UPS’ innovation center should witness surging demand going forward.
UPS’ non-GAAP total revenue increased 12.5% year-over-year to $27.85 billion in its fiscal year 2021 fourth quarter, ended Dec. 31, 2021. The company’s non-GAAP total operating profit came in at $3.95 billion for the quarter, up 37.7% from the prior-year period. While its non-GAAP net income increased 35.6% year-over-year to $3.15 billion, its non-GAAP EPS increased 35% to $3.59. As of Dec. 31, 2021, the company had $10.26 billion in cash and cash equivalents.
Analysts expect UPS’ EPS to improve 5.7% year-over-year to $12.82 in its fiscal year 2022, ending Dec. 31, 2022. The company surpassed the Street’s EPS estimates in each of the trailing four quarters, which is impressive. The $102.09 billion consensus revenue estimate for the same fiscal year indicates a 4.9% year-over-year improvement. The stock has gained 6.7% in price over the past year and closed the last trading session at $188.02.
The stock’s 10.47x forward EV/EBITDA is 2.9% lower than the 10.79x industry average. In terms of forward Price/Cash Flow, UPS is currently trading at 11.26x, which is 16.6% lower than the 13.50x industry average.
UPS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Sentiment and Quality. Click here to see the additional ratings for UPS’ Growth, Value, Momentum, and Stability.
UPS is ranked #6 of 18 stocks in the B-rated Air Freight & Shipping Services industry.
British American Tobacco p.l.c. (BTI)
BTI is a London-based multi-category consumer goods company that delivers tobacco and nicotine products internationally. The company manufactures and sells cigarettes, roll-your-own tobacco, cigars, e-cigarettes, medicinal nicotine products, and tobacco heating products. It sells its products to retail outlets.
On Jan. 7, 2022, BTI announced the launch of KBio Holdings Limited (KBio), a U.K.-based biotech company that is focused on plant-based medicine, to accelerate the R&D and production of novel treatments.
As of Dec. 31, 2021, the company had £2.81 billion ($3.66 billion) in cash and cash equivalents. The $4.68 consensus EPS estimate for its fiscal year 2022, ending Dec.31, 2022, represents a 4.3% year-over-year improvement. The stock has gained 10% in price over the past year and closed the last trading session at $42.86.
BTI’s 8.89x forward EV/EBITDA is 27.6% lower than the 12.27x industry average. In terms of forward Price/Cash Flow, BTI is currently trading at 7.57x, which is 44.2% lower than the 13.55x industry average.
BTI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has an A grade for Sentiment and a B grade for Stability and Quality. Click here to see the additional ratings for BTI (Growth, Value, and Momentum).
BTI is ranked #4 of 10 stocks in the B-rated Tobacco industry.
McKesson Corporation (MCK)
MCK provides healthcare supply chain management, retail pharmacy, community oncology, specialty care, and healthcare information solutions internationally. The Irving, Tex.-based company partners with payers, hospitals, physician offices, pharmacies, pharmaceutical companies, and others across the spectrum of care to build healthier organizations that deliver better care to patients.
On March 14, 2022, CTI BioPharma Corp. (CTIC), a biopharmaceutical company focused on developing novel targeted therapies for blood-related cancers, selected MCK’s Biologics by McKesson, an independent specialty pharmacy specializing in oncology and rare diseases, as a specialty pharmacy provider for VONJOTM for the treatment of intermediate or high-risk primary or secondary myelofibrosis. MCK will be able to provide this new treatment option to patients and witness an expanding customer base in the coming months.
For its fiscal 2022 third quarter, ended Dec. 31, 2021, MCK’s revenues increased 9.6% year-over-year to $68.61 billion. The company’s non-GAAP gross profit came in at $3.40 billion, up 8.2% from the prior-year period. Its non-GAAP income from continuing operations came in at $1.27 billion, representing a 19.4% rise from its prior-year value. MCK’s non-GAAP net earnings were $944 million for the quarter, indicating a 27.4% rise from the prior-year period. Its non-GAAP EPS increased 33.7% year-over-year to $6.15. The company had $2.75 billion in cash and equivalents as of Dec. 31, 2021.
Analysts expect the company’s EPS to grow 38.8% from the prior-year period to $23.89 for its fiscal year 2022, ended March 31, 2022. It surpassed the Street EPS estimates in each of the trailing four quarters. The $261.56 billion consensus revenue estimate for the same fiscal year indicates a 9.8% year-over-year improvement. The stock has gained 69.6% in price over the past year and closed the last trading session at $25.77.
The stock’s 10.17x forward EV/EBITDA is 26.8% lower than the 13.89x industry average. In terms of forward Price/Cash Flow, MCK is currently trading at 12.21x, which is 33.7% lower than the 18.41x industry average.
MCK’s POWR Ratings reflect its solid prospects. It has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, and Stability. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for MCK’s Sentiment, Quality, and Momentum here.
MCK is ranked #5 of 83 stocks in the A-rated Medical - Services industry.
Click here to checkout our Healthcare Sector Report for 2022
Danone S.A. (DANOY)
Headquartered in Paris, France, DANOY is a global food and beverage company that operates through Essential Dairy & Plant-Based; Specialized Nutrition; and Waters segments. The company also offers specialized nutrition products for pregnant and breastfeeding mothers, infants, and young children. It distributes its products through retail chains and traditional market outlets, convenience stores, hospitals, clinics, pharmacies, and e-commerce.
DANOY’s recurring operating income for its fiscal full year 2021, ended Dec. 31, 2021, increased marginally year-over-year to €3.34 billion ($3.61 billion). As of Dec. 31, 2021, the company had €659 million ($712.09 million) in cash and cash equivalents.
DANOY surpassed the Street’s revenue estimates in each of the trailing four quarters. The $27.86 billion consensus revenue estimate for its fiscal 2022, ending Dec. 31, 2022, represents a 1.5% rise from the prior-year period. The stock has declined 19.2% over the past year and ended the last trading session at $11.41.
DANOY’s 10.31x forward EV/EBITDA is 16% lower than the 12.27x industry average. In terms of forward Price/Book, DANOY is currently trading at 1.84x, which is 40.2% lower than the 3.08x industry average.
DANOY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Stability, Value, and Quality. Click here to see the additional ratings for DANOY (Growth, Sentiment, and Momentum).
DANOY is ranked #16 of 86 stocks in the B-rated Food Makers industry.
Sanofi S.A. (SNY)
Headquartered in Paris, France, SNY is a healthcare company that researches, develops, manufactures, and markets therapeutic solutions internationally. The company operates through three segments–Pharmaceuticals; Vaccines; and Consumer Healthcare. It also develops cardiovascular, thrombosis, metabolic disorder, central nervous system, and oncology medicines and drugs.
On April 7, 2022, the European Commission (EC) expanded the marketing authorization for SNY’s Dupixent in the European Union. Dupixent is now approved in children aged 6 to 11 years as an add-on maintenance treatment for severe asthma with type 2 inflammation characterized by raised blood eosinophils and/or raised fractional exhaled nitric oxide. Dupixent’s Phase 3 data had resulted in a significant reduction of severe asthma attacks and also improved lung function and health-related quality of life for children. This should allow Dupixent to receive widespread recognition in the coming months.
For its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, SNY’s net sales increased 27.2% year-over-year to €9.99 billion ($11.30 billion). The company’s gross profit came in at €6.94 billion ($7.85 billion), representing a 10.2% year-over-year improvement. Its net income came in at €1.14 billion ($1.29 billion), up 6% from the prior-year period. SNY’s EPS increased 5.9% year-over-year to €0.90. The company had cash and cash equivalents of €10.10 billion ($11.42 billion) as of Dec. 31, 2021.
Analysts expect the company’s EPS to improve 9.3% year-over-year to $4.24 in its fiscal year 2022, ending Dec. 31, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters, which is impressive. The stock has gained 11% in price over the past year and ended the last trading session at $55.75.
The stock’s 10.73x forward EV/EBITDA is 22.7% lower than the 13.89x industry average. And in terms of forward Price/Cash Flow, SNY is currently trading at 14.10x, which is 23.4% lower than the 18.41x industry average.
SNY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Sentiment. Click here to see the additional ratings for SNY (Growth, Momentum, and Quality).
The stock is ranked #18 of 171 stocks in the Medical - Pharmaceuticals industry.
Click here to checkout our Healthcare Sector Report for 2022
UPS shares were trading at $187.27 per share on Monday afternoon, down $0.75 (-0.40%). Year-to-date, UPS has declined -11.99%, versus a -7.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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