The January Consumer Price Index (CPI) rose 6.4% year-over-year, exceeding the Dow Jones estimate of 6.2%. In addition, the significant retail sales growth of 3% and the hotter-than-expected labor market adding 5,17,000 jobs have accelerated the pressure on the Fed to keep higher rates for some time.

Goldman Sachs Group Inc. (GS) and Bank of America Corporation (BAC) anticipate the U.S. Federal Reserve to raise interest rates three more times this year. Markets expect the Fed to raise rates to the 5.25-5.50% range.

Such tenacious rate hikes are feared to tip the economy into recession and cause volatility in the market. Michael Hartnett, the chief investment strategist at Bank of America Global Research, cautioned investors saying, “Be aware that the benchmark’s advance so far this year is likely to be wiped out by early next month.”

Furthermore, Michael Wilson, the chief U.S. equity strategist at Morgan Stanley (MS), warned investors that the stock market has entered a level known as the death zone and suggested the S&P 500 could tumble to 3,000 points within months, down about 26% from current levels. 

Amid such volatilities, fundamentally strong and stable stocks Johnson & Johnson (JNJ) and Novartis AG (NVS) might be wise portfolio additions in 2023.

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company operates through the broad segments of Consumer Health; Pharmaceuticals; and MedTech.

On December 22, 2022, JNJ announced that it had completed its acquisition of Abiomed, Inc. (ABMD), a heart, lung, and kidney support technologies company, for an enterprise value of approximately $16.60 billion. This acquisition is expected to broaden JNJ’s MedTech segment’s position as a cardiovascular innovator.

On January 3, 2023, JNJ declared a dividend for the first quarter of 2023 of $1.13 per share on its common stock, payable to shareholders on March 7, 2023. This reflects its cash generation abilities.

Its annual dividend of $4.52 yields 2.82% on prevailing prices. The company’s dividend payouts have increased at a 6% CAGR over the past three years and a 6.1% CAGR over the five years. JNJ’s four-year average dividend yield is 2.60%. JNJ has raised dividends for 60 consecutive years.

JNJ’s trailing-12-month gross profit margin of 67.36% is 21.4% higher than the industry average of 55.48%. Its trailing-12-month EBITDA of 34.46% is 824.9% higher than the 3.73% industry average.

For the fiscal fourth quarter of 2022, JNJ’s reported sales came in at $23.71 billion.  Its non-GAAP adjusted net earnings rose 9.5% year-over-year to $6.22 billion. The company’s non-GAAP adjusted net earnings per share rose 10.3% from its year-ago value to $2.35.

For the fiscal first quarter ending March 2023, the consensus EPS estimate is $2.52. Its revenue is expected to increase marginally year-over-year to $23.58 billion for the same quarter. Additionally, JNJ topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock lost 1.5% intraday to close its last trading session at $158. It has a five-year beta of 0.54, indicating less volatility than the overall market.

JNJ’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

JNJ is rated an A for Stability and a B for Value and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #9 out of 174 stocks.

Click here to see additional POWR Ratings for Momentum, Growth, and Sentiment for JNJ.

Novartis AG (NVS)

Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments, Innovative Medicines; and Sandoz. It provides prescription medicine for patients and physicians. In addition, it offers cardiovascular, neuroscience, immunology, and solid tumor products.

On February 6, Sandoz, an NVS division and the operator in off-patent medicines, announced that the U.S. Food and Drug Administration (FDA) accepted its Biologics License Application (BLA) for proposed biosimilar denosumab, indicated for treating various conditions, including osteoporosis in postmenopausal women.

The company continues to build a biosimilar portfolio to extend patient access to high-quality therapies and promote the sustainability of healthcare systems.

On January 24, Sandoz struck a deal with Astellas to acquire worldwide product rights to the leading systemic antifungal drug Mycamine®. The addition of the drug is expected to support Sandoz’s global program to combat antimicrobial resistance through the targeted use of appropriate therapies. This agreement might reinforce Sandoz’s hospital offering and enhance its position in generic antibiotics.

NVS’ trailing-12-month gross profit margin of 70.90% is 27.8% higher than the industry average of 55.48%. Its trailing-12-month EBITDA of 34.74% is 832.4% higher than the 3.73% industry average.

NVS’ board of directors proposes a dividend payment of CHF 3.20 per share for 2022, up 3.2% from CHF 3.10 per share in the prior year, representing the 26th consecutive dividend increase since December 1996. If approved, the dividend is scheduled to be paid from March 13, 2023.

NVS’ forward annual dividend of $3.47 translates to a 4% yield on prevailing prices, while its four-year average dividend yield is 3.58%. Over the last three and five years, its dividend payouts have grown at 5.5% and 4.1% CAGRs, respectively.

For the fiscal fourth quarter that ended December 31, 2022, NVS’ core operating income came in at $4.03 billion, up 5.5% year-over-year. Its core net income increased 3.7% year-over-year to $3.25 billion, while its core EPS was $1.52, up 8.6% year-over-year. In addition, the company’s free cash flow stood at $3.55 billion, indicating an increase of 17.3% year-over-year.

NVS’ revenue is expected to increase 3.7% year-over-year to $13.26 billion in the fiscal second quarter ending June 2023, while its EPS is expected to grow 4.8% year-over-year to $1.64.

The stock has gained marginally over the past year and 1.2% past six months to close the last trading session at $86.76. It has a five-year beta of 0.47.

NVS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

NVS has an A grade for Stability and a B for Value, Sentiment, and Quality. Within the same industry, it is ranked #3. 

Click here to access the additional POWR Ratings for NVS (Growth and Momentum).

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JNJ shares were unchanged in premarket trading Wednesday. Year-to-date, JNJ has declined -9.91%, versus a 4.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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