The Federal Reserve’s multiple interest rate hikes this year finally led to a slight decline in inflation in July. Moreover, the economy witnessed a reduced unemployment rate and increased consumer sentiment. However, since inflation remains elevated and the economic data came out better than expected, the central bank might maintain its hawkish stance in the upcoming months.
Since aggressive interest rate hikes could push the economy into a recession, it could be wise to focus on fundamentally-sound stocks from defensive sectors to cushion your portfolio.
Belonging to the discount store and healthcare industries, fundamentally sound stocks Dollar Tree, Inc. (DLTR), UnitedHealth Group Incorporated (UNH), and Zoetis Inc. (ZTS) could be solid investments to make your portfolio recession-proof.
Dollar Tree, Inc. (DLTR)
DLTR operates a discount variety store chain via its Dollar Tree and Family Dollar segments. The company sells an assortment of everyday general merchandise, including kitchen and dining, books, personal care, glasses, food carriers, gifts, and other household products. It has a 0.68 beta.
For its fiscal 2022 first quarter ended April 30, 2022, DLTR’s net sales increased 6.5% year-over-year to $6.90 billion. The company’s operating income came in at $731.50 million, up 40.7% from the year-ago period.
Its net income came in at $536.40 million, representing a 43.2% rise from the prior-year period. DLTR’s EPS came in at $2.37, indicating a 48.1% year-over-year improvement. As of April 30, 2022, the company had $122 billion in cash and cash equivalents.
Analysts expect an EPS of $8.20 for fiscal 2022 ending January 31, 2023, indicating a rise of 41.4% from the prior-year period. It surpassed the consensus EPS estimates in each of the trailing four quarters.
The consensus revenue estimate of $28.17 billion for the same fiscal year represents a 7% year-over-year improvement. Its EPS is expected to grow at a rate of 16.6% per annum over the next five years. Over the past three months, the stock has gained 25.6% to close the last trading session at $168.05.
DLTR’s POWR Ratings reflect this promising outlook. It has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth and Sentiment. Click here to see the additional ratings for DLTR’s Value, Momentum, Quality, and Stability. DLTR is ranked #26 of 38 stocks in the A-rated Grocery/Big Box Retailers industry.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified health care and insurance company that offers a broad spectrum of products and services through UnitedHealthcare and Optum platforms. It provides employers with products and resources to plan and administer employee benefit programs. It has a 0.76 beta.
On August 11, 2022, Surest, UNH’s employer-sponsored health plan, announced a new approach to health benefits that removes deductibles and provides clear upfront pricing information to people before treatment.
The Surest app offers clear and transparent health care quality and cost data that help remove financial barriers to care and make it easier for members to understand their coverage and cost before receiving care or making an appointment. This should help UNH witness higher demand in the coming months.
UNH’s revenues for its fiscal 2022 second quarter ended June 30, 2022, grew 12.6% year-over-year to $80.33 billion. The company’s earnings from operations came in at $7.13 billion, indicating a 19.3% rise from the year-ago period.
Its adjusted net earnings came in at $5.29 billion, up 17.7% from the prior-year period. UNH’s adjusted EPS increased 18.5% year-over-year to $5.57. It had $24.61 billion in cash and cash equivalents as of June 30, 2022.
Analysts expect the company’s EPS to be $21.85 for fiscal 2022 ending December 31, 2022, indicating a 14.9% increase from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive.
The consensus revenue estimate of $322.14 billion for the same fiscal year represents a 12% year-over-year improvement. Its EPS is expected to grow at a rate of 14.4% per annum over the next five years. Over the past three months, the stock has gained 15.7% to close the last trading session at $545.22.
UNH’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has a B grade for Growth, Quality, Sentiment, and Stability. In addition to the POWR Ratings grades we have just highlighted, one can see UNH’s Value and Momentum ratings here. UNH is ranked #3 of 11 stocks in the A-rated Medical – Health Insurance industry.
Zoetis Inc. (ZTS)
ZTS discovers, manufactures, and markets veterinary vaccines, medicines, and diagnostic products complemented by genetic tests and a range of services worldwide. It markets its products to veterinarians, livestock producers, retail outlets, and third-party veterinary distributors through its sales representatives and technical and veterinary operations specialists. It has a 0.72 beta.
On June 22, 2022, ZTS completed its acquisition of Basepaws, a privately held petcare genetics company that offers genetic tests, analytics, and early health risk assessments. Basepaws’ services will help pet owners and veterinarians understand a pet’s risk for disease, early diagnosis, and treatment of disease. This acquisition will enhance ZTS’ portfolio in the precision animal health space.
ZTS’ revenue for its fiscal 2022 second quarter ended June 30, 2022, increased 5.3% year-over-year to $2.05 billion. The company’s non-GAAP gross profit came in at $1.43 billion, representing a 3.5% year-over-year improvement. Its non-GAAP pre-tax income came in at $715 million for the quarter, up 1.3% from the prior-year period.
While its non-GAAP net income increased 0.2% year-over-year to $567 million, its non-GAAP EPS grew 0.8% to $1.20. As of June 30, 2022, the company had $2.65 billion in cash and cash equivalents.
Analysts expect ZTS’ EPS to be $5.01 for fiscal 2022 ending December 31, 2022, representing a 6.7% rise from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters.
The consensus revenue estimate of $8.27 billion for the same fiscal year indicates a 6.4% year-over-year improvement. Its EPS is expected to grow at 11.1% per annum over the next five years. Over the past three months, the stock has gained 7.1% to close the last trading session at $170.17.
ZTS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Stability and Quality. Click here to see the additional ratings for ZTS’ Momentum, Value, Sentiment, and Growth. ZTS is ranked #17 of 170 stocks in the Medical – Pharmaceuticals industry.
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DLTR shares were trading at $167.62 per share on Friday afternoon, down $0.43 (-0.26%). Year-to-date, DLTR has gained 19.29%, versus a -10.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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