Persistently high inflation, significant tightening of monetary policy, geopolitical instability owing to Russia’s invasion of Ukraine, and growing fears of a recession have contributed to a highly uncertain market environment this year. After hitting bear market lows in the first half of this year, stocks rebounded in July, but major market indices retreated again, hitting new lows in September.
Stocks rebounded and witnessed a solid rally in mid-October. Better-than-expected Consumer Price Index (CPI) data for the month indicating signs of inflation cooling boosted investors’ confidence. The stock market racked up its second consecutive month of gains in November as investors became more optimistic that the Fed could deliver a smaller rate hike at its December meeting.
Despite the stronger-than-expected jobs and wages report in November fueling concerns that the Fed might exceed its 5% terminal rate, the market approaches the “Santa Claus rally” window in December. The window typically covers the last five trading sessions of the year and the first two of the new year, and the S&P 500 has been positive about 79% of the time since 1928 during those days.
Economic resilience is aiding companies with solid growth prospects, impressive balance sheets, and healthy cash flows. Investors’ interest in growth stocks is evident from the Vanguard Growth ETF’s (VUG) 5.5% gains over the past month.
With growing optimism among investors, the fastest-growing stocks CVS Health Corporation (CVS), McKesson Corporation (MCK), Celestica Inc. (CLS), and NextGen Healthcare, Inc. (NXGN) could be ideal additions to your portfolio now.
CVS Health Corporation (CVS)
CVS provides health services in the United States. The company operates through three segments: Health Care Benefits; Pharmacy Services; and Retail/LTC. It operates more than 9,900 retail locations and 1,200 MinuteClinic locations, online retail pharmacy websites, LTC pharmacies, and onsite pharmacies.
On December 1, CVS opened its first MinuteClinic locations in northern Delaware. MinuteClinic, the medical clinics inside select CVS Pharmacy stores, offers high-quality, affordable, and convenient care for a wide variety of acute and chronic conditions for patients ages 18 months and older.
On September 5, CVS entered a definitive agreement with Signify Health (SGFY) to acquire Signify Health.
CVS Health President and CEO Karen S. Lynch said, “This acquisition will enhance our connection to consumers in the home and enables providers to address patient needs better as we execute our vision to redefine the healthcare experience. In addition, this combination will strengthen our ability to expand and develop new product offerings in a multi-payor approach.”
For the fiscal 2022 third quarter ended September 30, 2022, CVS’ total revenues increased 10% year-over-year to $81.16 billion. Its adjusted operating income increased by 3.9% from the prior-year period to $4.23 billion. In addition, the company’s adjusted earnings per share came in at $2.09, up 6.1% year-over-year.
Over the past three years, CVS’ revenue and EBIT have grown at CAGRs of 8.9% and 7.2%, respectively.
Analysts expect CVS’ revenue and EPS for the current fiscal year (ending December 2022) to increase 7.6% and 2.6% from the prior year to $314.35 billion and $8.62, respectively. The company’s revenue and EPS for the next year are expected to grow 3.5% and 2.8% year-over-year to $325.30 billion and $8.86, respectively.
Furthermore, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 7.9% to close the last trading session at $102.53.
CVS’ strong fundamentals are reflected in its POWR Ratings. 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.
CVS has an A grade for Growth and a B for Stability and Sentiment. It is ranked first out of 4 stocks in the B-rated Medical – Drug Stores industry.
We have also given CVS grades for Value, Momentum, and Quality. Get all the CVS ratings here.
McKesson Corporation (MCK)
MCK provides healthcare products and services in the United States and internationally. The company operates through four segments: U.S. Pharmaceutical; International; Medical-Surgical Solutions; and Prescription Technology Solutions (RxTS).
On September 29, MCK signed an agreement in principle to extend its partnership with CVS Health to distribute pharmaceuticals to mail-order and specialty pharmacies, retail pharmacies, and distribution centers through June 2027. With the extension of this partnership, MCK might continue developing value propositions for patients utilizing its differentiated assets and capabilities.
On September 19, MCK announced that it had signed an agreement to acquire Rx Savings Solutions (RxSS). MCK’s CEO Brian Tyler said, “We expect the acquisition of Rx Savings Solutions to accelerate McKesson’s growth priority in biopharma services by extending our ecosystem of differentiated medication access solutions to patients.”
MCK’s revenues increased 5.4% year-over-year to $70.15 billion for the fiscal 2023 second quarter ended September 30, 2022. The company’s operating income increased 108.5% year-over-year to $1.12 billion. Its net income grew 211.9% from the year-ago value to $967 million, while earnings per common share attributable to MCK came in at $6.47, up 274% year-over-year.
MCK’s revenue and EBIT have grown at CAGRs of 7% and 3.3%, respectively, over the past three years. Its levered free cash flow has improved at an 18.2% CAGR over the same period.
Analysts expect MCK’s revenue for the fiscal year 2022 (ending March 2023) to come in at $275.87 billion, indicating a 4.5% year-over-year increase. The consensus EPS estimate of $24.74 for the current period represents a 4.4% year-over-year rise. Furthermore, the company’s revenue and EPS for the next fiscal year are 3.8% and 6.5% year-over-year, to $286.46 billion and $26.34, respectively.
Shares of MCK have gained 21.2% over the past six months and 68.4% over the year to close the last trading session at $381.64.
MCK’s POWR Ratings reflect this promising outlook. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system.
MCK has a grade A for Growth. It has a grade B for Stability, Sentiment, Value, and Quality. Within the Medical-Services industry, it is ranked #1 out of 79 stocks.
Get all POWR Ratings for MCK here.
Celestica Inc. (CLS)
CLS is a hardware platform and supply chain solutions provider. It operates through two segments: Advanced Technology Solutions and Connectivity & Cloud Solutions. It serves aerospace and defense, industrial, energy, health tech, original equipment manufacturers, cloud-based, and other service providers. The company is headquartered in Toronto, Canada.
On October 18, CLS launched the DS1000 high-performance Gigabit Ethernet Layer 3 switch, a compact, resilient, cost-effective, open network switch. This should benefit the company with its contribution to the OCP Enterprise Connectivity Solutions (ECS) group.
CLS’ revenue has grown at a 3.1% CAGR over the past three. Moreover, its EBITDA and EBIT have increased at CAGRs of 13.9% and 28.2%, respectively, over the past three years.
In the fiscal 2022 third quarter ended September 30, 2022, CLS’ IFRS revenue increased 31.1% year-over-year to $1.92 billion, and its non-IFRS adjusted gross profit rose 33.5% from the year-ago value to $171.50 million. Its non-IFRS adjusted net earnings grew 46.5% year-over-year to $63.60 million, while its non-IFRS adjusted earnings per share stood at $0.52, up 48.6% year-over-year.
For the fiscal fourth quarter ending December 2022, analysts expect CLS’ revenue to come in at $1.96 billion, representing an increase of 29.7% year-over-year. The consensus EPS estimate of $0.54 for the ongoing quarter indicates a 21.9% year-over-year increase.
Likewise, the company’s revenue and EPS for the current fiscal year are expected to grow 27.2% and 44.5% year-over-year to $7.17 billion and $1.88, respectively. CLS has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 2.7% over the past month to close its last trading session at $11.07.
CLS’ overall A rating translates to a Strong Buy in our proprietary rating system. The stock has a grade A for Growth and Value. It has a grade of B for Momentum and Sentiment.
Within the Technology – Services industry, it is ranked second out of 77 stocks.
In addition to the POWR Rating grades stated above, one can see the additional CLS grades for Quality and Stability here.
NextGen Healthcare, Inc. (NXGN)
NXGN offers healthcare technology solutions in the United States. The company provides clinical care solutions, including NextGen Enterprise HER; financial solutions comprising NextGen Enterprise PM; patient engagement solutions, such as NextGen Virtual Visits; interoperability solutions consisting of NextGen Share and Mirth Connect; and data and analytics solutions, which consist of NextGen Health Data Hub.
On November 30, NXGN signed a definitive agreement to acquire TSI Healthcare, a privately held value-added reseller. The consideration is comprised of an upfront amount of $68 million to be paid in cash with contingent consideration of up to $22 million in the form of an earnout. The acquisition might enable NXGN to expand its presence in key specialties such as rheumatology, pulmonology, and cardiology.
The acquisition is expected to contribute approximately $10 to $12 million of revenue in the remaining four months of fiscal 2023; and will be accretive to adjusted EBITDA and cash flow within a year.
In the fiscal 2023 second quarter ended September 30, 2022, NXGN’s revenues increased 6.8% year-over-year to $159.44 million. The company reported income from operations of $9.29 million, compared to a loss from operations of $7.90 million in the prior-year period. Its net income came in at $13.62 versus a net loss of $6.77 million in the prior year’s quarter.
In addition, the company’s net income per share stood at $0.20, compared to a net loss of $0.10 per share in the previous year’s period.
NXGN’s revenue and EBIT have grown at CAGRs of 4.9% and 8.1%, respectively, over the past three years. Its EPS has improved at a 6.5% CAGR over the same period.
Analysts expect NXGN’s EPS for the fiscal year 2024 (ending March 2024) to come in at $1.08, indicating an 11.8% year-over-year increase. The consensus revenue estimate of $683.98 million for the next year represents a 7.2% year-over-year rise. The company topped the consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 6% over the past six months and 14.7% over the past year to close the last trading session at $19.11.
NXGN’s fundamental strength and strong outlook are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system.
NXGN has a grade of A for Growth and a B for Quality. It is ranked #5 of 79 stocks in the Medical-Services industry.
To access all the POWR Ratings for NXGN, click here.
CVS shares rose $0.02 (+0.02%) in premarket trading Friday. Year-to-date, CVS has gained 1.63%, versus a -15.61% 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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