With the hotter-than-expected inflation, robust jobs data, and raised prospects of higher interest rates, the risk of a recession does not seem to be going away anytime soon. Hence, it could be wise to invest in fundamentally strong stocks, Walmart (WMT), HCA Healthcare (HCA), and Coca-Cola Consolidated (COKE), that could weather the effects of a potential recession. Keep reading….
The central bank hiked interest rates by 450 basis points over the last year to combat soaring inflation. Interest rates have now risen to their highest level since 2007. Furthermore, a higher-than-expected January inflation report indicates that the Federal Reserve’s path to sought price stability is likely to be bumpy.
The Consumer Price Index (CPI) rose 0.5% in January, compared to 0.1% in December. Over the last 12 months, inflation increased by 6.4%. Both numbers exceeded economists’ expectations of 0.4% and 6.2% respective increases.
Fed officials this Tuesday indicated that the central bank would need to keep increasing rates to fight inflation and suggested sticky price pressures driven by robust jobs growth might push borrowing costs higher than previously projected. The officials said they would keep the door open to peak the policy rate above 5.1%.
Moreover, according to the majority of economists in a Reuters poll, the Fed would raise rates at least twice in the coming months, with the risk of going higher, and expect no rate cut this year. Progressive interest rate hikes could push the economy into a recession.
Amid growing inflationary and recessionary pressures, it could be wise to invest in quality stocks Walmart Inc. (WMT), HCA Healthcare, Inc. (HCA), and Coca-Cola Consolidated, Inc. (COKE) for stable returns.
Walmart Inc. (WMT)
WMT runs retail, wholesale, and other units globally. Its segments include Walmart U.S.; Walmart International; and Sam’s Club. The company runs supermarkets, warehouse clubs, cash and carry outlets, discount stores, and membership-only warehouse clubs. It also conducts its business online under 46 different banners.
On January 12, 2023, Walmart Commerce Technologies and Walmart GoLocal announced a partnership with Salesforce, Inc. (CRM) to provide businesses with access to the tools and services that enable frictionless local pickup and delivery for customers globally. The company could gain from the improved user experience.
On December 15, 2022, WMT Canada announced its plans to open a first-of-its-kind distribution center in Quebec in addition to two distribution centers that opened earlier that year. Another distribution center in Mexico is strengthening its logistics and supply chain networks across the entire Southeast region.
Such investments should enable the company to bolster its distribution networks and offer a brisker shopping experience to its customers.
WMT’s forward annual dividend of $2.24 yields 1.55% on the current price level. Its four-year average yield is 1.68%. The company’s dividend payouts have increased at a 1.9% CAGR over the past three and five years. It has a record of 49 years of consecutive dividend growth.
WMT’s trailing-12-month cash from operations of $23.59 billion is significantly higher than the $272.90 million industry average. Moreover, its trailing-12-month ROCE and ROTC of 11.61% and 10.10% compare to the industry averages of 10.36% and 6.14%, respectively.
WMT’s total revenues grew 8.7% year-over-year to $152.81 billion in the fiscal 2023 third quarter that ended October 28, 2022. Its adjusted operating income rose 4.6% from the prior year’s quarter to $6.10 billion. Also, the company’s adjusted EPS came in at $1.50, up 3.4% year-over-year.
Furthermore, as of October 28, 2022, the company’s total current assets stood at $87.68 billion, compared to $81.07 billion as of January 31, 2022.
The consensus revenue estimate of $621.81 billion for the fiscal year ending January 2024 reflects a 3.3% year-over-year improvement. The consensus EPS estimate of $6.50 for the ongoing year indicates a 6.9% rise from the previous year. Moreover, WMT surpassed its consensus EPS estimates in three of four trailing quarters.
Shares of WMT have gained 8% over the past year to close the last trading session at $144.27.
WMT’s POWR Ratings reflect its strong outlook. 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 a B grade for Stability and Sentiment. In the A-rated 39-stock Grocery/Big Box Retailers industry, it is ranked #10.
Beyond what we stated above, we also have WMT’s ratings for Value, Quality, Growth, and Momentum. Get all WMT ratings here.
HCA Healthcare, Inc. (HCA)
HCA offers health care services. It runs general and acute care hospitals that provide medical and surgical services and psychiatric institutions that offer therapeutic programs. Also, the company manages outpatient healthcare facilities.
On February 17, it was reported that HCA had purchased some property to the south of HCA Florida Osceola Hospital. The company now owns the entire block that includes its hospital campus. The land purchase may strategically benefit the company and set the stage for future development.
On December 13, 2022, HCA announced its enterprise-wide adoption of the Enhanced Surgical Recovery (ESR) program, a patient-centered, research-based, multidisciplinary approach to surgical recovery.
The ESR program has been implemented at 167 HCA Healthcare facilities. It has shown significant benefits in surgical recovery, including a two-day average reduction in hospital stays and a 44% drop in opioid usage for specific surgeries. The company could strategically benefit by improving patient care with this program.
HCA’s $2.40 forward annual dividend yields 0.91% on prevailing prices. Its dividend payouts have increased at an 11.9% CAGR over the past three years. HCA has a four-year average yield of 0.87%.
The stock’s trailing-12-month EBITDA margin of 19.96% is 435.7% higher than the 3.73% industry average. Furthermore, its trailing-12-month CAPEX/Sales of 7.30% is 58.3% higher than the industry average of 4.61%, while its asset turnover ratio of 1.17x is 245.5% higher than the 0.34x industry average.
For the fiscal fourth quarter that ended December 31, 2022, HCA’s revenues increased 2.9% year-over-year to $15.50 billion, while its income before income taxes grew 27.7% from the year-ago value to $3.30 billion. In addition, HCA’s net income and EPS rose 32% and 26.6% year-over-year to $2.65 billion and $7.28, respectively.
Analysts expect HCA’s revenue to increase 4% year-over-year to $62.66 billion for the fiscal year ending December 2023. The company’s EPS for the current year is expected to rise 2.2% from the prior year to $17.26. The stock has gained 23.6% over the past six months to close the last trading session at $263.15.
HCA’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
HCL has a B grade for Stability, Value, and Quality. It has topped the 12-stock Medical – Hospitals industry.
In addition to the POWR Ratings I’ve just highlighted, you can see HCA ratings for Growth, Momentum, and Sentiment here.
Coca-Cola Consolidated, Inc. (COKE)
COKE manufactures, sells, and distributes non-alcoholic beverages. It sells its products to other Coca-Cola bottlers and provides distribution services for several other beverage brands, such as Monster Energy and Dr. Pepper. The company sells and distributes its products directly to grocery stores, club stores, etc.
The company’s forward annual dividend of $2 yields 0.38% on current prices. COKE’s dividend payouts have increased at 7.7% and 4.6% CAGRs over the past three and five years, respectively. It has a four-year average yield of 0.32%.
COKE’s trailing-12-month gross profit margin of 36.05% is 14.3% higher than the 31.53% industry average. And its trailing-12-month EBITDA margin of 11.90% is 12.8% higher than the 10.55% industry average. Also, the stock’s trailing-12-month net income margin of 5.49% is 34.6% higher than the industry average of 4.08%.
COKE’s net sales for its third quarter, which ended September 30, 2022, increased 11.7% year-over-year to $1.63 billion. Its adjusted gross profit grew 19.7% from the year-ago value to $620.38 million, while its adjusted income from operations rose 41.3% year-over-year to $193.92 million.
Furthermore, the company’s adjusted net income came in at $138.76 million, a 46.8% year-over-year increase, and its adjusted EPS grew 46.8% from the prior-year quarter to $14.81.
Analysts expect COKE’s revenue to increase 2.7% year-over-year to $6.09 billion for the fiscal year ending December 2023. Shares of COKE have gained 5.9% over the past month to close the last trading session at $521.21.
COKE’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Quality and Value. It has topped the B-rated 37-stock Beverages industry.
To see additional POWR Ratings for Sentiment, Stability, and Momentum for COKE, click here.
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WMT shares were trading at $145.13 per share on Friday afternoon, up $0.86 (+0.60%). Year-to-date, WMT has gained 2.36%, versus a 5.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal’s passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor’s degree in finance and is pursuing the CFA program.She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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