The stock market has had a weak start to the year on investors’ concerns about multi-decade high inflation, Russia’s invasion of Ukraine, rising energy prices, and the potential of aggressive rate hikes by the Federal Reserve. The economy has been under severe inflationary stress, with the Consumer Price Index rising to 7.9% in February, an increase not seen since January 1982. Crude oil prices have skyrocketed recently, with the WTI and Brent benchmarks hitting multi-year highs amid fears of supply disruptions. Historically, the U.S. economy has slipped into recession amid high oil prices. And high inflationary conditions might persist with crude oil prices persistently above $100 bbl.
After announcing its first interest rate increase in more than three years, the Federal Reserve has indicated that it may hike interest rates even more aggressively. Higher rates could make it difficult for businesses to grow. According to economist Mohamed El-Erian, “The bond market believes inflation is too high, the Fed is well behind the curve, and the Fed risks pushing the economy into recession as it tries to catch up.”
Given this backdrop, we think it could be wise to bet on shares of defensive companies because of the near inelastic demand for their products and services. So, Lowe's Companies, Inc. (LOW), Unilever PLC (UL), Target Corporation (TGT), British American Tobacco p.l.c. (BTI) and Colgate-Palmolive Company (CL) could be good bets now.
Lowe's Companies, Inc. (LOW)
LOW in Mooresville, N.C., operates home improvement and hardware stores. The company offers a range of products for maintenance, remodeling, repair, and decorating and provides home improvement products, such as lighting, electrical, and building materials. Also, it serves homeowners, renters, and professional customers.
On Feb. 3, 2021, LOW announced the launch of its brand Origin21, which delivers an approachable, modern design for everyday living across the entire home. LOW’s Senior VP, Global Merchandising, Sarah Dodd, said, “We’re excited to bring Origin21 to our customers, which is just part of our larger goal to offer consumers everything they need to finish their home improvement projects, all at an exceptional value.”
LOW’s net sales increased 5% year-over-year to $21.33 billion for the fourth quarter, ended Jan. 28, 2022. The company’s net earnings increased 23.3% year-over-year to $1.20 billion. Also, its EPS came in at $1.78, representing a 34.8% increase year-over-year.
Over the last three years, LOW’s dividend payout has grown at a 17.5% CAGR. Its four-year average dividend yield is 1.6%, and its current payout translates to a 1.4% yield.
Analysts expect LOW’s EPS for the quarter ending July 31, 2022, to increase 12.5% year-over-year to $4.78. Its revenue for its fiscal 2024 is expected to increase 2.8% year-over-year to $101.11 billion. Also, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 16.4%in price to close the last trading session at $219.57.
LOW’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Sentiment and Quality. It is ranked #13 of 65 stocks in the Home Improvement & Goods industry. Click here to check the additional ratings of LOW for Growth, Value, Momentum, and Stability.
Unilever PLC (UL)
Headquartered in London, UL is a fast-moving consumer goods company. It operates through Beauty & Personal Care; Foods & Refreshment; and Home Care segments. The company offers its products under Domestos, OMO, Seventh Generation, Ben & Jerry’s, Knorr, Magnum, Wall’s, Bango, Axe, Cif, Comfort, Dove, Lifebuoy, Lux, and Vaseline.
On Nov. 18, 2021, UL announced that it had agreed with CVC Capital Partners Fund VIII to sell its tea business, ekaterra. Ekaterra has a portfolio of 34 brands, which include PG tips, Pukka, Lipton, T2. UL CEO, Alan Jope, said, “The evolution of our portfolio into higher-growth spaces is an important part of our growth strategy for Unilever. Our decision to sell ekaterra demonstrates further progress in delivering against our plans.”
For its fiscal year 2021, UL’s turnover increased 3.4% year-over-year to €52.44 billion ($57.93 billion). The company’s operating profit increased 4.8% year-over-year to €8.70 billion ($9.61 billion). And its net profit increased 9% year-over-year to €6.62 billion ($7.31 billion). In addition, its EPS came in at €2.32, representing a 9.4% increase year over year.
Over the last three years, UL’s dividend payout has grown at a 3.2% CAGR. Its four-year average dividend yield is 3.3%, and its current payout translates to a 4.2% yield.
For its fiscal 2023, UL’s EPS is expected to increase 16.3% year-over-year to $3.32. Its revenue for fiscal 2022 is expected to increase 3.3% year-over-year to $61.99 billion. Over the past month, the stock has declined 8% in price to close the last trading session at $46.25.
UL’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 Value and Stability. Within the Consumer Goods industry, it is ranked #8 of 61 stocks. To see the other ratings of UL for Growth, Momentum, Sentiment, and Quality, click here.
Target Corporation (TGT)
TGT is a general merchandise retailer that sells products through its stores and digital channels. The Minneapolis, Minn.-based company sells an assortment of available merchandise and food. The company’s product categories include apparel and accessories, beauty and household essentials, food and beverage, hardlines, and home furnishing and décor. Its brands include Art Class, Smartly, Auden, Joylab, Colsie, Wild Fable, Open Story, etc.
On March 1, 2022, TGT announced plans to invest up to $5 billion to continue scaling its operations in 2022. The investment will be directed to its physical stores, digital experiences, fulfillment capabilities, and supply chain capabilities that further differentiate its retail offering and drive sustained growth. TGT Chief Financial Officer Michael Fiddelke said: “We see substantial opportunities to build on our core capabilities to drive deeper guest engagement and long-term growth.”
TGT’s total revenue increased 9.4% year-over-year to $30.99 billion for the fourth quarter, ended Jan. 29, 2022. The company’s net earnings increased 11.9% year-over-year to $1.54 billion. Also, its adjusted EPS came in at $3.19, representing a 19.4% increase year-over-year.
Over the last three years, TGT’s dividend payout has grown at a 10% CAGR. Its four-year average dividend yield is 2.2%, and its current payout translates to a 1.6% yield.
Analysts expect TGT’s EPS for its fiscal year 2024 to increase 9.2% year-over-year to $15.92. Its revenue for the quarter ending July 31, 2022, is expected to increase 4.7% year-over-year to $26.26 billion. It surpassed consensus EPS estimates in each of the trailing four quarters. And over the past year, the stock has gained 12.4% in price to close the last trading session at $222.93.
TGT’s POWR Ratings reflect solid prospects. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #14 of 39 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the other ratings of TGT for Growth, Momentum, and Stability.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in BTI for a 65% gain. Learn more about the RTR service here.
British American Tobacco p.l.c. (BTI)
Headquartered in London, BTI is a multi-category consumer goods company that provides tobacco and nicotine products. It is investing in building a portfolio of tobacco and nicotine products alongside its traditional tobacco business, including vapor, tobacco heating, and modern oral products.
On Feb. 11, 2022, BTI announced a program to buy back up to £2 billion ($2.64 billion) of its ordinary shares. The buyback is slated to end no later than Dec. 31, 2022. This move will help create value for shareholders.
For its fiscal year 2021, BTI’s adjusted revenue increased 6.9% year-over-year to £25.68 billion ($33.64 billion). Its adjusted revenue from new categories increased 50.9% year-over-year to £2.05 billion ($2.69 billion). The company’s adjusted profit from operations increased 5.2% year-over-year to £11.15 billion ($14.60 billion). Also, its adjusted EPS came in at 329 pence, representing a 6.6% increase year-over-year.
Over the last three years, BTI’s dividend payout has grown at a 4.8% CAGR. Its four-year average dividend yield is 6.8%, and its current payout translates to a 7% yield.
For its fiscal year 2023, BTI’s EPS and revenue are expected to increase 8.3% and 4.1%, respectively, year-over-year to $5.07 and $36.20 billion. Over the past six months, the stock has gained 14% in price to close the last trading session at $42.43.
BTI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which translates to a Buy in our proprietary rating system.
It has a B grade for Stability and Sentiment. It is ranked #4 out of 11 stocks in the B-rated Tobacco industry. To see the other ratings of BTI for Growth, Value, Momentum, and Quality, click here.
Colgate-Palmolive Company (CL)
CL in New York City is a household and consumer products company. The company operates in the Oral Personal and Home Care; and Pet Nutrition segments, through which it sells products that include liquid hand soap, shampoos, and deodorants. CL manufactures pet nutrition products for dogs and cats through its Hill’s Pet Nutrition segment.
On Jan. 24, 2022, CL and 3Shape announced that they were partnering to introduce Colgate Illuminator, an exclusive, tailored-to-patient teeth whitening tool, to dental clinics across the U.S. This new tool should help deliver an improved patient experience by enabling more accurate consultations.
CL’s net sales increased 2% year-over-year to $4.40 billion for the fourth quarter, ended Dec.31, 2021. The company’s selling, general and administrative expenses decreased 2.1% year-over-year to $1.59 billion. Its total debt for its fiscal year ended Dec. 31, 2021, declined 4.6% year-over-year to $7.24 billion.
Over the last three years, CL’s dividend payout has grown at a 2.3% CAGR. Its four-year average dividend yield is 2.3%, and its current payout translates to a 2.4% yield.
Analysts expect CL’s EPS and revenue for its fiscal 2023 to increase 8.5% and 3.8%, respectively, year-over-year to $3.59 and $18.56 billion. Over the past month, the stock has declined 0.9% in price to close the last trading session at $76.20.
CL’s POWR Ratings reflect solid prospects. The stock has an A grade for Quality.
It has a B grade for Stability. It is ranked #11 of 61 stocks in the Consumer Goods industry. Click here to see the other ratings of CL for Growth, Value, Momentum, and Sentiment.
LOW shares were trading at $214.38 per share on Wednesday morning, down $5.19 (-2.36%). Year-to-date, LOW has declined -16.79%, versus a -2.84% 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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