The Federal Reserve continued its battle against inflation by increasing its benchmark interest rate by 50 basis points to the highest level in 15 years. Furthermore, the Fed signaled that it will raise the key interest rate to 5.1% in 2023, higher than its previous projection, with no reductions until 2024.
Investors have become increasingly concerned that the Fed’s resolve to keep raising interest rates could slide the economy into a recession. The probability that the United States will fall into a recession by November 2023 came in at 38.06%, a significant increase from the previous month's projection of 26.03%.
The major stock market indexes marked their second consecutive week of losses last week, with the S&P 500 declining 2.1% for the week. The Dow Jones and Nasdaq Composite fell 1.7% and 2.7%, respectively.
Amid the uncertain macro environment, fundamentally sound stocks Johnson & Johnson (JNJ), Pfizer Inc. (PFE), and KT Corporation (KT) could be safe investments now.
Johnson & Johnson (JNJ)
JNJ, the world’s largest and most diverse healthcare company, develops, manufactures, and sells various products in the healthcare field. Its business operates through three segments: Consumer Health Products; Pharmaceutical Products; and MedTech.
On November 1, 2022, JNJ and Abiomed Inc. (ABMD), a world leader in breakthrough heart, lung, and kidney support technologies, announced that they have entered into a definitive agreement under which JNJ will acquire through a tender offer all outstanding shares of Abiomed, for an upfront payment of $380.00 per share in cash.
ABMD’s skilled workforce, strong ties with clinicians, unique cardiovascular portfolio, and extensive pipeline will complement JNJ’s MedTech portfolio. It will also enable JNJ to implement its strategic priorities, and vision for the new JNJ focused on Pharmaceutical and MedTech.
For the fiscal 2022 third quarter ended September 30, 2022, JNJ’s reported sales increased 1.9% year-over-year to $23.79 billion, with adjusted operational growth of 8.2%. The company’s net earnings rose 21.6% year-over-year to $4.46 billion, while its EPS increased 22.6% from the year-ago value to $1.68.
JNJ paid a quarterly dividend of $1.13 per share on December 6, 2022. It pays a $4.52 per share dividend annually, which translates to a 2.57% yield on the current price. Its four-year average dividend yield is 2.60%. JNJ’s dividend payout has grown at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years. The company has raised its dividend for 60 consecutive years.
Analysts expect JNJ’s revenue to increase 1.4% year-over-year to $95.04 billion for the fiscal year ending December 2022. The company’s EPS for the current year is expected to grow 2.5% year-over-year to $10.05. JNJ has an impressive earnings surprise history since it surpassed the consensus EPS estimates in each of the four trailing quarters.
In addition, analysts expect the company’s revenue and EPS for the next fiscal year to grow 2.6% and 3.2% year-over-year to $97.54 billion and $10.37, respectively. Over the past six months, JNJ has gained 3.3% and 2.4% year-to-date to close the last trading session at $175.67.
JNJ’s strong fundamentals are 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 Stability and a B for Value and Quality. Within the Medical-Pharmaceuticals industry, it is ranked #7 of 159 stocks.
Beyond what we stated above, we also have JNJ’s ratings for Growth, Sentiment, and Momentum. Get all JNJ ratings here.
Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas.
On December 14, 2022, PFE and China Meheco Group Co Ltd. (China Meheco) signed an agreement under which China Meheco will import and distribute PFE’s oral COVID-19 treatment Paxlovid in mainland China amid the resurgence of covid cases. This deal is expected to boost the company’s revenue streams.
On December 9, PFE’s board of directors declared an increase in the quarterly cash dividend on the company’s common stock to $0.41 for the first-quarter 2023 dividend, payable on March 3, 2023. The first-quarter cash dividend will be the 337th consecutive quarterly dividend paid by the company. Its current dividend yield is 3.19%, while its four-year average yield is 3.63%.
“Our ability to increase our dividend is a testament to our solid financial performance during 2022. This increase reinforces Pfizer’s commitment of returning value to our shareholders,” said Dr. Albert Bourla, Pfizer,s Chairman and CEO.
Also, on December 8, 2022, PFE and BioNTech SE (BNTX) received the U.S. Food and Drug Administration’s Emergency Use Authorization for their Omicron BA.4/BA.5-adapted bivalent COVID-19 vaccine. It is the third 3-µg dose in the three-dose primary series for children between 6 months and four years, and it adds to the companies’ covid portfolio.
For its third quarter that ended October 2, 2022, PFE’s United States segment revenues came in at $13.85 billion, up 97.3% year-over-year. Its non-GAAP net income was $10.17 billion, up 39.7% year-over-year. Also, the company’s non-GAAP EPS came in at $1.78, up 40.2% year-over-year.
PFE’s revenue is expected to increase 23.3% year-over-year to $100.17 billion for the fiscal year 2022. The company’s EPS for the ongoing year is expected to increase 46.5% year-over-year to $6.48. Furthermore, it surpassed the consensus EPS estimates in all four trailing quarters.
Over the past month, the stock has gained 5.6% to close the last trading session at $51.40.
PFE’s POWR Ratings reflect its promising outlook. The stock's overall A rating equates to a Strong Buy in our proprietary rating system.
PFE has a B grade for Value, Growth, Sentiment, and Quality. It is ranked #2 out of 159 stocks in the Medical – Pharmaceuticals industry. Click here for additional PFE ratings (Momentum and Stability).
KT Corporation (KT)
Headquartered in Korea, KT is a leading telecommunications service provider. The company operates through four segments: Information and Communications Technologies; Finance; Satellite Broadcasting; and Other.
On October 7, KT announced that it would strengthen its strategic partnership with Hyundai Motor Company (HYMTF). KT will expand the Connected Car business, for which the company has been collaborating with HYMTF for many years, and further plans to provide communication modules and connectivity to HYMTF’s domestic and overseas OEM vehicles.
For the third quarter of fiscal 2022, KT’s operating revenue increased 4.2% year-over-year to ₩6.48 trillion ($4.93 billion). Its operating income came in at ₩452.90 billion ($344.91 million), up 18.4% year-over-year. The company’s EBITDA increased 6.4% year-over-year to ₩1.36 trillion ($1.04 billion). The company’s assets stood at ₩40.65 trillion ($30.96 billion), compared to ₩35.83 trillion ($27.29 billion) a year ago.
KT pays a $0.75 per share dividend annually, which translates to a 5.45% yield on the current share price. Its four-year dividend yield is 4.66%. The company’s dividend payouts have grown at a CAGR of 16.7% over the past three years and 16.6% over the past five years.
Analysts expect KT’s revenue for the fiscal year ending December 2023 to increase 3.3% year-over-year to $20.35 billion, while the company’s EPS is expected to increase 4.2% from the previous year to $1.96. The stock has gained 9.5% year-to-date to close the last trading session at $13.79.
In line with its solid fundamentals and a promising outlook, KT has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. It has a grade of A for Value and Stability.
KT is ranked #3 of 46 stocks in the A-rated Telecom – Foreign industry. Click here to access additional POWR Ratings (Momentum, Sentiment, Quality, and Growth) for KT.
JNJ shares were unchanged in premarket trading Monday. Year-to-date, JNJ has gained 5.39%, versus a -18.37% 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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