This year, macroeconomic and geopolitical headwinds have fostered heightened volatility in the stock market. Fed staff economists warned that the chances of a recession in the next year had increased to almost 50% on slowing consumer spending, global economic risks, and more interest rate hikes.
However, inflation cooled more than expected in October as the Consumer Price Index (CPI) rose 7.7% from a year earlier. Therefore, a “substantial majority” of policymakers at the Fed’s meeting earlier this month agreed that it would “likely soon be appropriate” to slow the pace of rate hikes.
“A slower pace would better allow the Federal Open Market Committee to assess progress toward its goals of maximum employment and price stability,” according to the FOMC minutes released on Wednesday.
According to Ned Davis Research, following October’s favorable CPI report, chances of a “goldilocks” scenario have increased in which the Fed tames inflation and avoids a recession. Also, Nobel economist Paul Krugman believes that a soft landing of the economy is increasingly likely.
Amid growing optimism, starters might consider adding quality stocks CSX Corporation (CSX), Albertsons Companies, Inc. (ACI), and KT Corporation (KT) to their portfolios.
CSX Corporation (CSX)
CSX provides rail-based freight transportation services. The company offers rail and intermodal transportation services through a network of approximately 30 terminals and other transportation services, such as rail-to-truck transfers and bulk commodity operations. The company operates a rail network of nearly 19,500 route miles.
On October 6, the company’s Board of Directors approved a $0.10 per share quarterly dividend payable on December 15, 2022. It pays a $0.40 per share dividend annually, which translates to a 1.30% yield on the current share price. Its four-year dividend yield is 1.25%.
The company’s dividend payouts have grown at a CAGR of 7.9% over the past three years and 9.2% over the past five years. The company has a record of 17 consecutive years of dividend growth.
For the fiscal 2022 third quarter ended September 30, 2022, CSX’s revenue increased 18.3% year-over-year to $3.90 billion. The company’s operating income grew 10% from the prior-year period to $1.58 billion. Its net earnings increased 20.9% from the year-ago value to $1.11 billion, while its EPS came in at $0.52, up 20.9% year-over-year.
Furthermore, net cash provided by operating activities rose 11.4% from the prior-year period to $4.26 billion.
Analysts expect CSX’s revenue for the fiscal year ending December 2022 to come in at $14.90 billion, representing an increase of 19% year-over-year. The company’s EPS for the current year is expected to increase 21.9% year-over-year to $1.90. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 13.7% over the past month to close the last trading session at $32.07.
CSX’s POWR Ratings reflect this promising outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Quality, Momentum, and Sentiment. In the 16-stock B-rated Railroads industry, CSX is ranked #7.
Click here to get additional POWR Ratings for CSX (Growth, Value, and Stability).
Albertsons Companies, Inc. (ACI)
ACI operates food and drug stores in the United States. The company’s food and retail drug stores offer groceries, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services. In addition, it manufactures and processes food products for sale in stores.
On October 14, ACI and Kroger (KR) entered a definitive agreement under which the companies will merge two complementary organizations with iconic brands and deep roots in their local communities to establish a national footprint. Combining two well-known and trusted supermarket banners should expand customer reach.
ACI’s shareholders are expected to receive total consideration valued at $34.10 per share. “This transaction with Kroger provides substantial value to shareholders and exciting opportunities for associates to be part of a combined organization with the ability to better support the lives and health of millions of Americans,” said Chan Galbato, Co-Chair of ACI’s Board of Directors and CEO of Cerberus Operations.
ACI’s Board of Directors paid a cash dividend of $0.12 per share for the third quarter of 2022 on November 14, 2022. It pays $0.48 as dividends annually, yielding 2.28% on the current price. This compares to its 4-year average dividend yield of 1.22%.
ACI’s net sales and other revenue increased 8.6% year-over-year to $17.92 billion in the fiscal 2022 second quarter ended September 30, 2022. Its operating income rose 9.3% year-over-year to $531 million. Its adjusted EBITDA grew 8.6% from the prior-year period to $1.05 billion.
Furthermore, the company’s adjusted net income increased 13.2% from the year-ago value to $418.30 million, while its adjusted net income per Class A common share came in at $0.72, up 12.5% year-over-year.
Analysts expect ACI’s revenue for the fiscal 2023 third quarter (ending November 2022) to increase 4.3% year-over-year to $17.45 billion. The company’s revenue for the current fiscal year is expected to increase 6.5% year-over-year to $76.56 billion. Moreover, the company has topped the consensus revenue estimates in each of the trailing four quarters.
Over the past month, the stock has declined 2.7% to close the last trading session at $20.44.
ACI’s fundamental strength and strong outlook are reflected in its POWR Ratings. The stock’s overall A rating translates to a Strong Buy in our POWR Ratings system. It has a grade of A for Value and B for Quality.
In the A-rated Grocery/Big Box Retailers industry, it is ranked #5 of 39 stocks. Click here for ACI’s additional POWR Ratings for Growth, Stability, Sentiment, and Momentum.
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.
Furthermore, on September 7, both companies agreed to acquire shares of each company mutually through a treasury stock exchange to aid the development of their partnership. KT decided to swap ₩750 billion ($564.05 million) shares with Hyundai Motor and Hyundai Mobis.
For the third quarter of fiscal 2022, KT’s operating revenue increased 4.2% year-over-year to ₩6.48 trillion ($4.87 billion). Its operating income came in at ₩452.90 billion ($340.61 million), up 18.4% year-over-year. The company’s EBITDA increased 6.4% year-over-year to ₩1.36 trillion ($1.02 billion). The company’s assets stood at ₩40.65 trillion ($30.57 billion), compared to ₩35.83 trillion ($26.95 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 4.62%. 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 $19.77 billion, while its EPS is expected to increase 4.2% year-over-year to $1.96. The stock has gained 11.6% over the past month and 10.1% year-to-date to close the last trading session at $13.86.
In line with its strong outlook, KT has an overall rating of B, which translates to a Buy in our POWR Ratings system. It has a grade of A for Value and a B for Stability. KT is ranked #6 of 46 stocks in the A-rated Telecom – Foreign industry.
Click here to access additional POWR Ratings (Momentum, Sentiment, Quality, and Growth) for KT.
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
CSX shares were unchanged in premarket trading Friday. Year-to-date, CSX has declined -13.92%, versus a -14.29% 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. More...
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