The Consumer Price Index (CPI) accelerated 6.5% year-over-year in the final month of last year, slowing down significantly from the 9.1% high in June. While inflation is cooling down, it is still way above the Fed’s 2% target. Therefore, the Fed is still determined to raise rates this year, which will likely tip the economy into a mild recession.
Moreover, the economy is slowing, following 2.9% and 3.2% growth in the fourth and third quarters of 2022, respectively. Retail spending and industrial production weakened in December. Retail sales declined by 1.1% in December, the largest monthly decline since December 2021. Also, industrial production fell 0.7%, while manufacturing output dropped 1.3% amid widespread declines across the sector.
Furthermore, even the strong labor market shows signs of economic weakness, with a drop in hours worked across industries, and mass layoffs announced by major companies.
GDP growth slowed to 2.1% last year and could slow further in 2023. The World Bank has recently lowered its projection for this year’s global economic growth from 3% to 1.7%. The revision was influenced by a considerable decline in the outlook for the U.S. economy.
Since macroeconomic headwinds are expected to persist, investors should opt for shares of companies whose businesses remain resilient regardless of the economic cycle. To that end, fundamentally strong stocks CVS Health Corporation (CVS), Volkswagen AG (VWAGY), Apogee Enterprises, Inc. (APOG), Sysco Corporation (SYY), and Spok Holdings, Inc. (SPOK) could be solid buys now.
CVS Health Corporation (CVS)
CVS offers healthcare services in the United States. Its segments include Pharmacy Services; Retail/LTC; Health Care Benefits; and Corporate/Other. The company offers health and wellness services, health plans, pharmacy services, and prescription drug coverage. It has more than 1,100 walk-in medical clinics and 9,000 retail locations.
On January 23, 2023, CVS Accountable Care Organization, Inc., a division of CVS, announced that it had entered into a collaboration with RUSH University System for Health (RUSH) to increase healthcare access for Chicago-area Medicare patients. The partnership is based on the Centers for Medicare & Medicaid Innovation (CMMI) redesigned direct contracting model ACO REACH.
Mohamed Diab, CEO of CVS Accountable Care Organization, said,” As part of CVS Health's care delivery strategy, we are engaging our assets on behalf of this ACO REACH population to help drive high-quality outcomes, promote health equity, and bring health care costs down.”
On December 15, 2022, CVS’ board of directors approved a quarterly dividend of $0.605 per share on its Common Stock, indicating a 10% increase over the previous quarterly dividend. The dividend is payable to shareholders on February 1, 2023.
CVS pays a $2.42 per share dividend annually, which translates to a 2.76% yield on the current price level. Its four-year average dividend yield is 2.76%, and its dividend payments have grown at a CAGR of 4.1% over the past three years.
Also, on December 1, CVS announced that it had opened its first MinuteClinic locations in northern Delaware. MinuteClinic, the medical clinics within select CVS Pharmacy stores, offers high-quality and affordable care for acute and chronic diseases. This is expected to expand the company’s reach and boost its profitability.
For the fiscal 2022 third quarter ended September 30, 2022, CVS’ total revenue increased 10% year-over-year to $81.16 billion, while its adjusted operating income grew 3.9% from the year-ago value to $4.23 billion. Moreover, the company’s adjusted EPS rose 6.1% from the prior year’s period to $2.09.
The consensus EPS estimate of $8.86 for the fiscal year (ending December 2023) indicates a 2.6% year-over-year improvement. Likewise, the current year's consensus revenue estimate of $325.83 billion reflects a rise of 3.5% year-over-year. Moreover, CVS surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Shares of CVS have gained marginally over the past five days to close the last trading session at $87.66.
CVS’ strong outlook is 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 are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Growth and a B for Stability, Value, and Sentiment. It has topped among the four-stock B-rated Medical – Drug Stores industry.
Beyond what we stated above, we also have CVS’ ratings for Quality and Momentum. Get all CVS ratings here.
Volkswagen AG (VWAGY)
Headquartered in Wolfsburg, Germany, VWAGY manufactures and sells automobiles primarily in Europe, North America, South America, and Asia-Pacific. The company has four segments: Commercial Vehicles; Power Engineering; Financial Services; and Passenger Cars and Light Commercial Vehicles.
On October 28, 2022, VWAGY announced that it will invest $763.50 million between 2022 and 2025 at its complex in the central state of Puebla, Mexico, one of Volkswagen’s largest facilities, to build a new paint plant and start production of a new gasoline-powered car. The plant is expected to open this year.
VWAGY pays a $1.35 per share dividend annually, which translates to a 7.7% yield on the current price level. Its four-year average dividend yield is 3.28%.
VWAGY’s sales revenue increased 24.2% year-over-year to €70.71 billion ($77.06 billion) for the third quarter of fiscal 2022 ended September 30. The company’s operating result grew 64.5% year-over-year to €4.27 billion ($4.65 billion).
Also, Automotive Division’s cash inflows from operating activities increased 139.3% year-over-year to €8.65 billion ($9.43 billion), while its net cash inflow was €3.28 billion ($3.57 billion), compared to net cash outflow of €2.97 billion ($3.24 billion) in the prior year’s quarter.
Analysts expect VWAGY’s revenue to increase 10.1% year-over-year to $301.60 billion for the fiscal year that ended December 2022. The company’s EPS for the same year is expected to increase 100.4% from the previous year to $6.51. Over the past month, the stock has gained 11.3% to close the last trading session at $17.41.
VWAGY’s strong prospects are reflected in its POWR Ratings. The stock's overall A rating translates to a Strong Buy in our proprietary rating system.
VWAGY has an A grade for Value and Growth. It has a B for Sentiment, Stability, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #1 out of 62 stocks. Get all VWAGY ratings here.
Apogee Enterprises, Inc. (APOG)
APOG designs and develops glass and metal products and services in the United States, Canada, and Brazil. The company operates through four segments: Architectural Framing Systems; Architectural Glass; Architectural Services; and Large-Scale Optical Technologies (LSO).
On January 12, 2023, APOG’s Board of Directors declared a quarterly dividend of $0.24 per share, a 9% increase from its previous quarterly dividend of $0,22 per share. The dividend will be payable on February 15, 2023. This marks the company’s 10th consecutive year with a dividend increase, and during this period, the quarterly dividend has grown by 167%, from $0.09 to $0.24 per share.
“This dividend increase reflects our improved operational performance, strong financial position, and ability to generate consistent cash flow. As we continue to execute our strategy, we’re committed to delivering value through investing in profitable growth and returning capital to our shareholders.”,” said Ty R. Siberhorn, APOG’s CEO.
In the fiscal 2023 third quarter ended November 26, 2022, APOG reported net sales of $367.85 million, a 10.2% increase year-over-year. Its operating income increased 96.3% from the year-ago value to $34.76 million. The company’s adjusted net earnings rose 49.7% year-over-year to $23.77 million, while its adjusted EPS was $1.07, up 69.8% year-over-year.
Analysts expect APOG’s revenue to increase 9.8% year-over-year to $1.44 billion in the fiscal year that ended December 2022. The company’s EPS for the same year is expected to grow 60.5% year-over-year to $3.98. Also, it surpassed the consensus revenue and EPS estimates in all four trailing quarters.
Over the past year, the stock has gained 11.2% to close the last trading session at $44.67.
APOG’s POWR Ratings are consistent with its strong fundamentals. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system.
APOG has an A grade for Growth and a B for Quality, Momentum, and Value. In the B-rated Industrial-Building Materials industry, it is ranked #1 out of 46 stocks.
To access additional POWR Ratings for Sentiment and Stability for APOG, click here.
Sysco Corporation (SYY)
SYY engages in the marketing and distribution of various food and related products, primarily to the food service or food-away-from-home industry worldwide. The company’s business segments include U.S. Foodservice Operations; International Foodservice Operations; SYGMA; and Other.
On November 11, 2022, SYY received its first battery-electric Freightliner eCascadia, a zero-emission Class 8 truck, in series production. This marks a critical milestone in the company’s climate journey as it works toward electrifying 35% of its U.S. fleet by 2030.
SYY has raised dividends for seven consecutive years. Over the last five years, its dividend payouts have grown at 7.5% CAGR. While SYY’s four-year average dividend yield is 2.41%, its current dividend translates to a 2.41% yield.
For fiscal 2023 first quarter ended October 1, 2022, SYY’s sales came in at $19.13 billion, up 16.2% year-over-year, and its gross profit grew 17.4% from the year-ago value to $3.49 billion. Its operating income rose 17.7% year-over-year to $734.33 million. Its net earnings increased 23.2% year-over-year to $465.57 million, while its EPS grew 24.7% year-over-year to $0.91.
Analysts expect SYY’s revenue to increase 10.9% year-over-year to $76.13 billion in the fiscal year ending June 2023. The company’s EPS for the ongoing year is expected to grow 27.5% year-over-year to $4.14. Also, it surpassed the consensus revenue estimates in all four trailing quarters.
Furthermore, the company’s revenue and EPS for the next fiscal year (ending June 2024) are expected to grow 3.9% and 14.2% year-over-year to $79.11 billion and $4.73, respectively. Shares of SYY have gained 1.7% over the past month to close the last trading session at $78.34.
SYY’s POWR Ratings reflect its promising outlook. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system.
SYY has an A grade for Growth and a B for Stability and Value. In the B-rated Food Makers industry, it is ranked #2 out of 82 stocks.
Click here for the additional POWR Ratings for Sentiment, Momentum, and Quality for SYY.
Spok Holdings, Inc. (SPOK)
SPOK provides healthcare communication solutions worldwide. It delivers clinical information to care teams to enhance patient outcomes. The company offers subscriptions to one-way or two-way messaging and ancillary services and sells devices to resellers.
Over the last five years, SPOK’s dividend payouts have grown at a 10.8% CAGR. Its four-year average dividend yield is 6.44%, and its annual dividend of $1.25 per share translates to a 14.92% yield.
For the third quarter that ended September 30, 2022, SPOK’s operating income came in at $3.54 million, compared to a loss of $3.56 million in the year-ago period. Its adjusted EBITDA was $4.66 million versus an adjusted EBITDA loss of $2.50 million in the prior-year quarter. The company’s net income of $2.92 million compared to a net loss of $2.49 million in the previous year’s period.
Also, the company’s EPS came in at $0.15, compared to a loss per share of $0.13 in the previous-year quarter.
The company’s EPS is likely to rise 40% year-over-year to $0.14 in the third quarter ending June 2023. The stock has gained 31.4% over the past six months, closing the last trading session at $8.38.
It is no surprise that SPOK has an overall rating of B, which equates to a Buy in our POWR Ratings system. SPOK has an A grade for Growth and Sentiment and a B for Quality and Value. It is ranked #2 among 19 stocks in the Telecom-Domestic industry.
In addition to the POWR Ratings mentioned above, we have also rated SPOK for Momentum and Stability. Get all SPOK ratings here.
CVS shares were trading at $87.53 per share on Friday morning, down $0.13 (-0.15%). Year-to-date, CVS has declined -5.42%, versus a 6.16% 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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