The Dow Jones Industrial Average rose 0.7% on Wednesday, posting a second straight day’s gain. However, the S&P 500 ended flat, and the tech-heavy Nasdaq Composite slipped 1.2%, as the content giant Netflix Inc. (NFLX) declined some 35% in price in intraday trading on concerns over the company’s loss of subscribers.
In addition, the Russia-Ukraine war has created a worldwide crisis by fostering a massive rise in fuel and food prices. Global growth is forecasted to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. The Russia-Ukraine conflict and the probability of aggressive Federal Reserve interest rate increases have also driven significant market volatility. The CBOE Volatility Index (^VIX) is up approximately 16% year-to-date. Furthermore, the Bank of America Corp. (BAC) has stated that an inflation-induced recession might lead to another stock market correction.
Against this backdrop, we think the stocks of The Kroger Co. (KR), Eli Lilly and Company (LLY), BJ's Wholesale Club Holdings, Inc. (BJ), O'Reilly Automotive, Inc. (ORLY), and PepsiCo, Inc. (PEP) might be ideal bets, given the companies’ fundamental strength.
The Kroger Co. (KR)
KR is a retailer that operates a combination of food and drug stores, multi-department stores, marketplace stores, and price-impact warehouses. The company’s offerings also include manufactured and processed food products and fuel.
On April 6, KR and Bed Bath & Beyond Inc. (BBBY) announced the launch of their new e-commerce experience. The multi-category omnichannel collaboration includes items such as beddings and storage to baby furniture and gears and is expected to expand the company’s e-commerce selection.
On March 22, KR and NVIDIA Corporation (NVDA) announced a strategic collaboration to enhance the shopping experience using AI-enabled applications and services. This is expected to benefit the company by expanding KR’s freshness initiatives.
KR’s sales increased 7.5% year-over-year to $33.05 billion in the fiscal fourth quarter of 2021. Adjusted net earnings attributable to KR came in at $686 million, up 8.9% from the prior-year quarter. Adjusted net earnings attributable to KR per common share improved 12.3% from the same period last year to $0.91.
Analysts expect KR’s EPS to increase 2.4% year-over-year to $3.77 in the fiscal year 2023. Likewise, Street expects revenue to rise 3.7% from the prior year to $143.05 billion for the same period. Moreover, KR has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
KR’s shares have gained 52.8% over the past year and 27.5% year-to-date to close yesterday’s trading session at $57.70.
KR’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 distinct factors, with each factor weighted to an optimal degree.
KR has an A grade for Growth and a B grade for Value, Sentiment, and Quality. In the 39-stock Grocery/Big Box Retailers industry, it is ranked #5. The industry is rated A.
In addition to the POWR Ratings we have stated above, one can see KR ratings for Momentum and Stability here.
Click here to checkout our Retail Industry Report for 2022
Eli Lilly and Company (LLY)
LLY engages in the discovery, development, and marketing of human pharmaceuticals worldwide. The company’s offerings include Baqsimi, used for severe hypoglycemia, alongside other pharmaceuticals used for treating ailments such as diabetes and cancer.
On March 28, biopharmaceutical company Innovent Biologics, Inc. and LLY announced the expansion of its strategic partnership through an agreement for Innovent to obtain sole commercialization of Cyramza (ramucirumab) and Retsevmo (selpercatinib), and for the right of the first negotiation granted to it for potential future commercialization of Pirtobrutinib in China.
On February 24, LLY and medicine company Boehringer Ingelheim announced that the United States Food and Drug Administration (FDA) approved Jardiance (empagliflozin) 10 mg for usage in reducing heart failure risk. This might benefit the company.
For the fiscal fourth quarter ended December 31, LLY’s revenue increased 7.5% year-over-year to $8 billion. Non-GAAP net income and non-GAAP EPS improved 7.6% and 7.8% from the same period prior year to $2.27 billion and $2.49, respectively.
Analysts expect LLY’s EPS to increase 8.9% year-over-year to $8.05 for the fiscal year 2022, while Street expects revenue to rise 2.8% from the prior year to $26.36 billion.
The stock has gained 53.7% over the past year and 6% year-to-date to close yesterday’s trading session at $292.92.
It is no surprise that LLY has an overall B rating, which translates to Buy in our POWR Rating system.
LLY has a Growth, Stability, Sentiment, and Quality grade of B. In the 170-stock Medical – Pharmaceuticals industry, it is ranked #15.
Click here to see the additional POWR Ratings for LLY (Value and Momentum).
Click here to checkout our Healthcare Sector Report for 2022
BJ's Wholesale Club Holdings, Inc. (BJ)
BJ operates as a warehouse club operator in the United States East Coast. The company provides an assortment of perishable products, general merchandise, and gas services alongside other ancillary services.
On April 4, BJ announced that its newest location Ross Township, Pennsylvania, would open on April 8, bringing BJ’s total location count to 227. This should expand the company’s footprint in the Pittsburgh area.
On March 28, BJ announced a partnership with DoorDash Inc. (DASH) to offer on-demand grocery delivery from its locations in 17 states. Monica Schwartz, executive vice president and chief digital officer, BJ, said, "We are excited to expand easy shopping solutions for our members, while also bringing BJ’s wide assortment and exclusive products to new potential members."
For the fiscal fourth quarter ended January 29, BJ’s total revenues increased 10.4% year-over-year to $4.36 billion. Adjusted net income rose 13.1% from the prior-year quarter to $109.91 million. Adjusted EPS improved 14.3% from the same period the prior year to $0.80.
The consensus EPS estimate of $3.26 for fiscal 2023 indicates a 0.3% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $17.71 billion reflects an improvement of 6.3% from the prior year. In addition, BJ has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 58.6% over the past year and 4.3% year-to-date to close yesterday’s trading session at $69.84.
This promising prospect is reflected in BJ’s POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
BJ has a Growth and Value grade of B. It is ranked #15 in the Grocery/Big Box Retailers industry.
To see the additional POWR Ratings for Momentum, Stability, Sentiment, and Quality for BJ, click here.
Click here to checkout our Retail Industry Report for 2022
O'Reilly Automotive, Inc. (ORLY)
ORLY operates in the retail and supply business of automotive aftermarket parts, tools, supplies, equipment, and accessories in the U.S. The company offers new and remanufactured automotive hard parts, maintenance items, and enhanced services and programs.
ORLY’s sales increased 16.4% year-over-year to $3.29 billion in the fiscal fourth quarter ended December 31. Net income and EPS came in at $518.97 million and $7.64, up 32.1% and 41.5% from the same period the prior year.
Street EPS estimate for the quarter ending June 2022 of $9.11 reflects a 9.4% year-over-year rise. Likewise, Street revenue estimate of $3.74 billion for the same quarter reflects an increase of 15.9% from the prior-year quarter. ORLY has beaten consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 38.7% to close yesterday’s trading session at $743.86. It has gained 5.3% year-to-date.
ORLY has an overall B rating, which translates to Buy in our POWR Rating system.
ORLY has an A grade for Sentiment and Quality and a B grade for Growth. In the 69-stock Auto Parts industry, it is ranked #3.
Click here to see the additional POWR Ratings for Value, Momentum, and Stability for ORLY.
PepsiCo, Inc. (PEP)
PEP is a popular food and beverage company operating worldwide. The company’s brand names include Cheetos, Doritos, Fritos, Lay’s Pepsi, 7UP, and Mountain Dew.
On March 23, PEP and Beyond Meat, Inc. (BYND) announced the launch of Beyond Meat Jerky, a plant-based jerky that is the first product from the two companies' joint venture Planet Partnership, LLC. Earlier, on February 23, PEP introduced Nitro Pepsi, a nitrogen-infused cola, which was expected to be launched nationwide on March 28. These new products might add to the company’s revenue stream.
For the fiscal fourth quarter ended December 25, PEP’s net revenue increased 12.4% year-over-year to $25.25 billion. Non-GAAP net income attributable to PEP and non-GAAP net income per common share attributable to PEP improved 4.4% and 4.1% from the same period prior year to $2.13 billion and $1.53, respectively.
The consensus EPS estimate of $1.23 for the quarter ended March 2022 indicates a 1.7% year-over-year increase. Likewise, the consensus revenue estimate for the same period of $15.53 billion reflects an improvement of 6.8% from the prior-year quarter. In addition, PEP has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 20.4% over the past year and 8.8% over the past six months to close yesterday’s trading session at $175.47.
PEP has an overall B rating, which translates to Buy in our POWR Rating system.
PEP has a B grade for Stability and Quality. It is ranked #13 out of the 34 stocks in the Beverages industry. The industry is rated B.
Click here to see the additional POWR Ratings for PEP (Growth, Value, Momentum, and Sentiment).
KR shares were trading at $58.16 per share on Thursday afternoon, up $0.46 (+0.80%). Year-to-date, KR has gained 29.09%, versus a -7.51% 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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