The stock market has rallied on reports of the consumer price index (CPI) and the producer price index (PPI) showing signs of a slowdown. However, experts are concerned about the overexcitement surrounding the inflation figures. Since inflation is still way above the Fed’s 2% target, interest rate hikes are expected to continue for some time.
Although the recent stock market rally suggests that the Fed might be able to achieve a soft landing, an economic slowdown might still be on the cards. Risks to growth and earnings indicate that the stock market could experience another fall. Capital Economics expects the S&P 500 to fall to a 3,200 trough by the middle of 2023.
Given this backdrop, we believe fundamentally strong stocks Cisco Systems, Inc. (CSCO) and Humana Inc. (HUM) could protect one’s investment portfolio by delivering stable returns.
Cisco Systems, Inc. (CSCO)
CSCO manufactures and sells internet protocol-based networking and other products related to the communications and information technology industry. The company serves businesses, public institutions, governments, and service providers.
On November 1, CSCO expanded its portfolio of specializations available through the company’s partner program. The six new specializations would focus on customer priorities and represent fast-growing market opportunities for the company and its partners. This is expected to be beneficial for the company.
On October 26, CSCO announced new features and capabilities for the reimagined Webex Customer Experience (CX) portfolio. The new capabilities are expected to deliver new omnichannel customer experiences.
The company’s forward annual dividend of $1.52 per share yields 3.42% at the current price level. The dividend payouts grew 6% in the last five years.
For the fiscal first quarter ended October 29, CSCO’s total revenue increased 5.7% year-over-year to $13.63 billion. Non-GAAP total gross margin increased 3.1% from the prior-year quarter to $8.58 billion. Non-GAAP net income and non-GAAP EPS improved 2.1% and 4.9% year-over-year to $3.55 billion and $0.86, respectively.
The consensus EPS estimate of $3.53 for the fiscal year 2023 indicates a 5.1% year-over-year improvement. Likewise, the consensus revenue estimate for the same year of $54.11 billion reflects a rise of 5% from the prior year. CSCO has topped consensus EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 10.4% over the past month to close its last trading session at $44.39.
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CSCO has a Quality grade of A. In the 48-stock Technology – Communication/Networking industry, it is ranked #4.
Click here to see the additional POWR Ratings for CSCO (Growth, Value, Momentum, Stability, and Sentiment).
Humana Inc. (HUM)
HUM is a health and well-being company that operates through three segments: Retail; Group and Specialty; and Healthcare Services. The company provides medical and supplemental benefit plans to individuals.
On October 27, HUM announced a dividend of $0.7875 per share, payable on January 27, 2023. The company’s forward annual dividend of $3.115 per share yields 0.61% at the current price. HUM’s dividends grew 15% in the last five years.
On October 26, HUM and kidney-care provider Monogram Health announced a new value-based care agreement for most Humana Medicare Advantage HMO and PPO plan members in four states for people with chronic kidney disease.
Carl Daley, HUM Senior Vice President of Retail Strategy and Operations, said, "Building on our existing relationship with Monogram is an important way we can provide the highest levels of support and access to care for our members."
HUM’s adjusted revenue increased 9% year-over-year to $22.75 billion in the fiscal third quarter of 2022. Its adjusted pretax income and adjusted EPS came in at $1.14 billion and $6.88, up 42.5% and 42.4% from the prior-year period, respectively. Adjusted operating cash flows came in at $2.68 billion.
Analysts expect HUM’s EPS to increase 18.5% year-over-year to $1.47 for the fiscal quarter ending December 2022. Likewise, Street revenue estimate for the same quarter of $22.48 billion indicates an improvement of 6% from the prior-year period. HUM has beaten consensus EPS estimates in each of the trailing four quarters.
The stock has gained 16.5% over the past year and 11.6% year-to-date to close its last trading session at $517.60.
It’s no surprise that HUM has an overall A rating, which translates to Strong Buy in our POWR Rating system.
HUM has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #3 out of the 11 stocks in the Medical – Health Insurance industry. The industry is rated A.
In addition to the POWR Rating grades we’ve stated above, one can see HUM ratings for Momentum and Stability here.
CSCO shares were trading at $45.87 per share on Thursday morning, up $1.48 (+3.33%). Year-to-date, CSCO has declined -25.34%, versus a -16.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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