Amid a toxic mix of sticky inflation, robust job data, and resilient consumer spending, the odds of interest rate hikes have been soaring. Fearing that the tenacious rate hikes might trigger a recession, the stock market is expected to remain volatile for quite some time. Amid this, let us look at UnitedHealth Group Incorporated (UNH) and Walmart Inc. (WMT), which could help investors cope with a recession.
The Fed’s prolonged efforts to tame the multi-decade high inflation has weighed heavily on the investors’ sentiments. Despite the efforts, the February employment report came in hotter-than-anticipated. The already dashed investor hopes were smashed by Fed Chair Jerome Powell’s hawkish statements.
Moreover, fearing the progressive rate hikes might push the economy into a recession, former Treasury Secretary Larry Summers said, “The [Federal Reserve’s] process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past.”
Furthermore, research firm Morning Consult’s poll results show that 46% of Americans believe the economy is in a recession, and another 22% believe the country will be in one within the next year.
Against this backdrop, fundamentally strong stocks UNH and WMT might be wise portfolio additions to navigate a potential recession.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company. The company operates through four segments: Optum Health; OptumInsight; OptumRx; and UnitedHealthcare. It offers consumer-oriented health benefit plans and services, software and information products, health care coverage, and well-being services.
On January 23, Optum Rx, UNH’s pharmacy services company, launched Price Edge, a tool that seamlessly compares direct-to-consumer pricing for traditional generic drugs with insurance pricing to ensure members receive the lowest prescription drug price. This should benefit the company.
On February 27, UNH’s board of directors authorized a dividend payment of $1.65 per share to be paid to shareholders on March 21, 2023. This reflects the company’s ability to pay back its shareholders.
Its annual dividend of $6.60 yields 1.42% on prevailing prices. The company’s dividend payouts have increased at a 15.2% CAGR over the past three years and 17.1% CAGR over the past five years. UNH’s four-year average dividend yield is 1.36%. UNH has increased its dividend for 13 consecutive years.
The stock’s trailing-12-month EBITDA margin of 9.51% is 180.7% higher than the industry average of 3.39%. Its trailing-12-month ROCE is 26.91% compared to the industry average of negative 39.86%.
For the fiscal fourth quarter that ended December 31, 2022, UNH’s total revenues increased 12.3% year-over-year to $82.79 billion. In addition, adjusted net earnings attributable to UNH common shareholders came in at $5.06 billion and $5.34 per share, up 18.1% and 19.2% year-over-year, respectively.
Analysts expect UNH’s revenue for the fiscal first quarter ending March 2023 to come in at $89.78 billion, indicating a 12% year-over-year growth. Street expects the company’s EPS for the same quarter to grow 10.7% year-over-year to $6.08. The company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
UNH gained marginally intraday to close the last trading session at $463.68. Its five-year beta is 0.69.
UNH’s POWR Ratings reflect its fundamental strength. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UNH has a B grade for Growth, Stability, Sentiment, and Quality. In the A-rated 10-stock Medical – Health Insurance industry, it is ranked #4.
Beyond what has been stated above, we’ve also given UNH grades for Value and Momentum. Get all UNH ratings here.
Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
On January 12, 2023, Walmart Commerce Technologies, one of WMT’s companies, and Walmart GoLocal recently announced a partnership with Salesforce Inc. (CRM) to give retailers access to the tools and services that enable frictionless local pickup and delivery for customers worldwide.
WMT’s trailing-12-month ROCE of 14.60% is 44.4% higher than the 10.12% industry average. Its trailing-12-month ROTC of 8.71% is 47.5% higher than the 6.20% industry average.
WMT’s board of directors approved an annual dividend for the fiscal year 2024 of $2.28 per share, an increase of approximately 2% from the $2.24 per share paid for the previous fiscal year. The annual dividend would be paid in four quarterly installments of $0.57 per share. The first dividend for the year is scheduled to be paid to shareholders on April 3, 2023.
WMT’s dividend yield of $2.28 per share translates to a 1.66% yield on the current price. Its dividends have grown at 1.9% CAGRs over the past three and five years. Its four-year average dividend yield is 1.67%. WMT has increased its dividend in each of the past 49 years.
WMT’s total revenues increased 7.3% year-over-year to $164.05 billion in the fiscal fourth quarter that ended January 31, 2023. Also, its net sales came in at $162.74 billion, up 7.4% year-over-year. Consolidated net income attributed to WMT grew 76.2% from the year-ago value to $6.28 billion, while its adjusted EPS came in at $1.71, representing an 11.8% year-over-year rise.
Street expects WMT’s revenue to increase 5% year-over-year to $147.24 billion for the fiscal first quarter ending April 2023. Its EPS for the same quarter is estimated to be $1.29. It surpassed revenue estimates in each of the four trailing quarters.
Over the past six months, the stock has gained 1.6% to close the last trading session at $137.37. It gained marginally intraday. Its five-year beta is 0.49.
WMT’s POWR Ratings reflect this promising outlook. It has an overall A rating, equating to a Strong Buy in our proprietary system.
It has an A grade for Stability and a B for Growth, Value, Sentiment, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #3 out of 37 stocks.
Click here for WMT’s additional POWR Ratings (Momentum).
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UNH shares were trading at $466.17 per share on Tuesday morning, up $2.49 (+0.54%). Year-to-date, UNH has declined -11.76%, versus a 2.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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