Geopolitical issues, increasing inflation, and interest rate hikes weighed on investors’ sentiments, leading to significant volatility in the stock market. Although the stock market might remain under pressure in the near term, fundamentally sound stocks Pfizer Inc. (PFE) and Honda Motor Company, Ltd. (HMC) could be worth adding to your portfolio.
Despite turbulence in the banking industry and uncertainties ahead, the Federal Reserve is anticipated to approve a quarter-point interest rate increase this week.
In addition, in relation to growing uncertainty about the economic consequences of bank failures, Jay Bryson, chief economist at Wells Fargo, said, “There will be real and lasting economic repercussions from this, even if all the dust settles well. I would raise the probability of a recession given what’s happened in the last week.”
Moreover, according to the Conference Board, economic weakness will intensify and spread more widely across the US economy in the coming months, resulting in a recession beginning in mid-2023. This year, real GDP growth is predicted to be 0.7%.
Despite the challenging times, PFE and HMC appear poised to generate consistent returns in 2023 and beyond.
Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas. The company serves wholesalers, retailers, hospitals, clinics, government agencies, and disease control and prevention centers.
On March 13, 2023, Pfizer and Seagen Inc. (SGEN) entered a formal merger agreement in which Pfizer will acquire Seagen, a global biotechnology company that discovers, develops, and commercializes ground-breaking cancer medicines, for $229 in cash per Seagen share, for a total enterprise value of $43 billion. PFE’s capabilities should improve as a result of this.
On March 10, 2023, PFE reported that the FDA had approved ZAVZPRETTM (zavegepant), the first and only CGRP receptor antagonist nasal spray for the immediate treatment of migraine with or without aura in adults, a significant success for the company.
PFE’s trailing-12-month gross profit margin of 66.02% is 18.9% higher than the industry average of 55.54%. Its trailing-12-month ROTA of 15.91% is higher than the industry average of negative 31.19%.
PFE has paid dividends for 33 consecutive years. Over the last three years, PFE’s dividend payouts have grown at a 5.2% CAGR. While PFE’s four-year average dividend yield is 3.65%, its current dividend translates to a 4.02% yield.
For the fourth quarter that ended December 2022, PFE’s revenues came in at $24.29 billion, up 1.9% year-over-year. Its income from continuing operations increased 39.7% year-over-year to $5 billion.
Also, its non-GAAP adjusted net income attributable to PFE common shareholders came in at $6.55 billion, up 44.2% year-over-year. In comparison, its non-GAAP adjusted EPS increased 44.3% year-over-year to $1.14.
Analysts expects PFE’s revenue to increase 4% year-over-year to $71.56 billion in 2024. Its EPS is expected to grow 12.2% year-over-year to $3.78 in 2024. It surpassed EPS estimates in all four trailing quarters. PFE’s shares have gained marginally intraday to close the last trading session at $40.81.
PFE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PFE has an A grade for Value and a B for Quality. Within the Medical – Pharmaceuticals industry, it is ranked #23 out of 166 stocks. Click here for the additional POWR Ratings for Growth, Stability, Sentiment, and Momentum for PFE.
Honda Motor Company, Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. Its four segments are Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.
On February 28, 2023, HMC and LG Energy Solution officially broke ground on a new joint venture (JV) EV battery manufacturing in Fayette, Ohio. Both businesses formed a joint venture in January to create lithium-ion batteries for electric vehicles. The facility’s yearly output capacity is expected to be around 40GWh.
This strategic relationship is projected to increase HMC’s profitability and growth in the coming years.
HMC’s trailing-12-month EBITDA margin of 13.80% is 19.8% higher than the industry average of 11.51%. Its trailing-12-month levered FCF margin of 8.41% is 333.8% higher than the industry average of 1.94%.
Over the last three years, HMC’s dividend payouts have grown at a 6.7% CAGR. While HMC’s four-year average dividend yield is 3.40%, its current dividend translates to a 3.72% yield.
HMC’s sales revenue came in at ¥4.44 trillion ($33.38 billion) for the third quarter that ended December 31, 2022, up 20.3% year-over-year. Its operating profit increased 22.2% year-over-year to ¥280.49 billion ($2.11 billion).
The company’s profit for the period increased 21.7% year-over-year to ¥265.14 billion ($2.01 billion), while EPS attributable to owners of the parent increased 28.5% year-over-year to ¥144.49.
HMC’s revenue is expected to increase 7.9% year-over-year to $137.68 billion in 2024. Its EPS is expected to increase by 13.2% per annum for the next five years. Over the past three months, the stock has gained 7.7% to close the last trading session at $25.25.
HMC’s overall A rating equates to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality, Sentiment, and Stability. The stock is ranked #3 out of 57 stocks in the Auto & Vehicle Manufacturers industry.
We’ve also rated HMC for Momentum and Growth. Get all HMC ratings here.
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PFE shares were trading at $40.39 per share on Tuesday afternoon, down $0.42 (-1.03%). Year-to-date, PFE has declined -20.45%, versus a 3.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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