While investors remain rattled after today’s key employment report from the Labor Department. Against this backdrop, we suggest you take a look at ‘Strong Buy’ stocks Gilead Sciences, Inc. (GILD), HCA Healthcare, Inc. (HCA), McKesson Corporation (MCK), and LSI Industries Inc. (LYTS).
Total employment increased by 311,000 in February, significantly more than the 225,000 new jobs economists were expecting, indicating that the job market remains tight and the Fed has its job cut out.
After two days of testimony, Federal Reserve Chair Jerome Powell has made it clear that interest rates will likely go higher than expected amid strong labor market and inflation data, leaving the major indices underwater for the week.
While the Fed chair emphasized that no decision has been made regarding the March meeting, traders are bracing for a larger-than-expected hike following a batch of strong economic data in recent weeks. According to the CME Group’s FedWatch tool, markets are placing a significant chance of a 50-basis point increase later this month.
Investors are also keeping a close eye on the treasury market, with the 10-year yield declining by about nine basis points, trading at 3.84% after a move higher in yields earlier this week led to a deepening inversion of the yield curve. Thus, the likelihood of a soft-landing for the economy has begun to fade as the narrative shifts from ‘Fed Pivot’ to ‘higher for longer.’
As the stock market outlook seems gloomy, investors could invest in quality stocks GILD, HCA, MCK, and LYTS that seem well-positioned to ride out the market volatility. Given their strong fundamentals and high profitability, these stocks have earned a ‘Strong Buy’ rating in our POWR Ratings System.
Gilead Sciences, Inc. (GILD)
GILD is a biopharmaceutical company focused on developing and commercializing medicine for treating life-threatening diseases, including HIV, viral hepatitis, and cancer.
Recently, Kite, a GILD company, acquired Tmunity Therapeutics, a clinical-stage biotech company focused on next-generation CAR T-therapies and technologies. This acquisition complements Kite’s existing in-house cell therapy research capabilities by adding additional pipeline assets, platform capabilities, and a unique partnership with the University of Pennsylvania.
On February 3, GILD announced that the U.S. Food and Drug Administration (FDA) had approved Trodelvy to treat adult patients with pre-treated HR+/HER2- metastatic breast cancer who have received prior endocrine-based therapy and at least two chemotherapies.
Moreover, in January, the European Medicines Agency also validated a Type II Variation Marketing Authorization Application for the same. Given the limited treatment options, such approvals make Trodelvy accessible to more patients across the European Union.
On February 2, GILD increased its quarterly dividend by 2.7% to $0.75 per share of common stock, payable on March 30, 2023. The company’s annual dividend of $3 yields 3.74% at the current price level. Its dividend payouts have increased at a 5% CAGR over the past three years and a 7% CAGR over the past five years. GILD has a record of seven years of consecutive dividend growth.
GILD’s total revenues increased 2% year-over-year to $7.39 billion for the fiscal fourth quarter that ended December 31, 2022. Its adjusted operating income grew 79.1% from the year-ago value to $2.70 billion, while its non-GAAP attributable net income came in at $2.11 billion, representing a 143.2% improvement year-over-year. Also, the company’s adjusted EPS increased by 142% from the prior-year value to $1.67.
For the fiscal second quarter ending on June 30, 2023, GILD’s EPS is expected to increase 8.8% year-over-year to $1.72. Its revenue for the same quarter is expected to increase by 3.6% year-over-year to $6.49 billion. The company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.
GILD’s revenue and EBITDA have increased at CAGRs of 6.7% and 6.8%, respectively, over the past three years, while its levered free cash flow has grown at a 10.1% CAGR.
The stock’s trailing-12-month EBITDA margin of 47.93% is substantially higher than the 3.56% industry average. Its trailing-12-month ROCE of 21.71% compares with the negative 40% industry average.
Over the past year, the stock has gained 33.8% to close the last trading session at $78.95.
GILD’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Growth and Value and a B for Quality. Out of the 400 stocks in the Biotech industry, it is ranked #2. To see the other ratings of GILD for Momentum, Stability, and Sentiment, click here.
HCA Healthcare, Inc. (HCA)
HCA is a healthcare services company that owns and operates general and acute care hospitals offering medical, surgical, emergency, and outpatient services. In addition, the company operates in two geographically organized groups: The National and American Groups.
On December 13, 2022, HCA announced its enterprise-wide adopted Enhanced Surgical Recovery (ESR) program. The ESR program is a patient-centered, research-based, and multidisciplinary approach to surgical recovery and has been adopted by 167 HCA Healthcare facilities.
On January 27, the company declared a quarterly dividend of $0.60 per share on its common stock, payable to its shareholders on March 31, 2023. HCA’s annual dividend of $2.40 yields 0.95% at the current price level. Its dividend payouts have increased at an 11.9% CAGR over the past three years.
HCA’s trailing-12-month EBITDA margin of 19.96% is 460.3% higher than the 3.56% industry average. Its trailing-12-month ROTC and ROTA of 14.44% and 10.76% compare with the negative industry averages of 22.39% and 31.07%, respectively.
For the fiscal fourth quarter that ended December 31, 2022, HCA’s revenues increased 2.9% year-over-year to $15.50 billion. Its adjusted EBITDA amounted to $3.18 billion, compared to $3.15 billion in the prior-year quarter. In addition, net income attributable to HCA and EPS came in at $2.08 billion and $7.28 per share, up 14.7% and 26.6% year-over-year, respectively.
Analysts expect HCA’s revenue and EPS for the fiscal second quarter (ending June 2023) to increase 4.4% and 1.6% year-over-year to $15.48 billion and $4.28, respectively. Its EPS and revenue have increased at CAGRs of 23.9% and 5.5%, respectively, over the past three years.
The stock has gained 25.3% over the past nine months to close the last trading session at $252.13.
HCA’s strong fundamentals are reflected in its POWR Ratings. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. Among the 11 stocks in the Medical – Hospitals industry, it is ranked first. Click here to see the other ratings of HCA for Growth, Momentum, and Sentiment.
McKesson Corporation (MCK)
MCK is a diversified healthcare service provider focusing on advancing health outcomes for patients globally. It operates its business through four segments: U.S. Pharmaceutical; Prescription Technology Solutions (RxTS); Medical-Surgical Solutions; and International.
On January 26, the company declared a regular dividend of 54 cents per share of common stock, payable on April 3, 2023. MCK’s annual dividend of $2.16 yields 0.64% on the current share price. It has a four-year average yield of 0.90%.
Its dividend payouts have increased at an 8.9% CAGR over the past three years and a 10% CAGR over the past five years. The company has increased its dividend payouts for 15 consecutive years.
Last year in September, MCK partnered with CVS Health Corporation (CVS) to distribute pharmaceuticals to mail order and specialty pharmacies, retail pharmacies, and distribution centers through June 2027. This extended pharmaceutical distribution agreement enables both companies to expand their market reach and boost overall revenue.
In the fiscal third quarter that ended December 31, 2022, MCK’s total revenues increased 2.7% year-over-year to $70.49 billion. The company’s income from continuing operations improved significantly year-over-year to $1.12 billion, while its adjusted earnings increased 3% from the year-ago value to $972 million. Also, its adjusted EPS came in at $6.90, representing an increase of 12.2% year-over-year.
Its revenue and EBIT have increased at CAGRs of 6.9% and 15.4% over the past three years. Also, its levered FCF margin has increased at a 24.8% CAGR over the same period.
In addition, the stock’s trailing-12-month net income margin and ROTC of 1.15% and 39.24% compare with negative industry averages of 7.07% and 22.39%, respectively.
The consensus EPS estimate of $7.11 for the fourth quarter (ending March 31, 2023) represents a 21.9% improvement year-over-year. The consensus revenue estimate of $68.08 billion for the current quarter indicates a 3% increase from the prior-year period. The company has an impressive earnings surprise history, surpassing the consensus revenue estimates in three of the trailing four quarters.
Over the past year, the stock has gained 21.5% to close the last trading session at $335.97.
MCK’s POWR Ratings reflect these solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Value and a B for Stability and Sentiment. Within the Medical – Services industry, it is ranked first out of 77 stocks. To see the ratings of MCK for Momentum and Quality, click here.
LSI Industries Inc. (LYTS)
LYTS produces non-residential lighting and retail display solutions in the United States, Canada, Mexico, Australia, and Latin America. It operates in two segments, Lighting; and Display Solutions.
On March 8, the company outlined its long-term strategic growth plan, including new, five-year financial targets through the financial year 2028. With the “Fast Forward” strategy, LYTS aims to deliver $800 million in net Sales and $100 million adjusted EBITDA over the next five years.
This strategy seeks to deliver sustained commercial expansion, operational excellence, and disciplined capital allocation, consistent with the company’s focus on long-term value creation.
In addition, for the current year (the fiscal year 2023) ending June 30, the company projects net sales of approximately $490-$500 million and adjusted EBITDA of $47-$49 million.
The company’s annual dividend of $0.20 yields 1.32% at the current price level, while its four-year average dividend yield is 3.21%. It paid a quarterly dividend of $0.05 per share on February 14 in connection with the second quarter of fiscal 2023.
LYTS’ net sales came in at $128.80 million in the fiscal 2023 second quarter that ended December 31, 2022, up 15.9% year-over-year. The company’s adjusted EBITDA increased 54% year-over-year to $12.98 million, while its adjusted net income came in at $7.63 million, up 79.8% from the prior-year quarter. Also, its adjusted EPS grew 73.3% year-over-year to $0.26.
Street expects LYTS’ revenue and EPS for the second quarter (ending June 2023) to increase 1.3% and 5.6% year-over-year to $129.12 million and $0.19, respectively. The company topped the revenue and EPS estimates in each of its trailing four quarters, which is promising.
LYTS’ revenue and EBITDA have increased at CAGRs of 14.9% and 53.4%, respectively, over the past three years, while its net income has grown at a 76.4% CAGR.
The stock’s trailing-12-month levered FCF margin of 5.43% is 43.9% higher than the 3.77% industry average. Also, its trailing-12-month ROTA of 7.25% compares with the industry average of 5.24%.
LYTS’ shares have gained 150.1% over the past nine months and 29.7% year-to-date to close the last trading session at $15.88.
It is no surprise that LYTS has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has an A grade for Value and Sentiment and a B for Quality. Out of 90 stocks in the Industrial – Equipment industry, it is ranked #5.
In addition to the POWR Ratings stated above, we have also given LYTS grades for Growth, Momentum, and Stability. Get all LYTS ratings here.
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GILD shares were trading at $79.93 per share on Friday afternoon, up $0.98 (+1.24%). Year-to-date, GILD has declined -6.90%, versus a 2.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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