Many economists expect the Federal Reserve to maintain its hawkish stance in the upcoming months as inflation remains elevated. Concerns over an economic slowdown have led to benchmark stock indexes closing the last week lower after gaining for four straight weeks on optimism over a slightly eased inflation in July and a red-hot job market.

Weaker-than-expected industrial production and retail sales in China and 40-year high inflation in the UK also added to investors’ concerns. The S&P 500 and the Nasdaq lost 1.2% and 2.6%, respectively, last week.

According to Ataman Ozyildirim, senior director of economics at the Conference Board, “The U.S. economy will not expand in the third quarter and could tip into a short but mild recession by the end of the year or early 2023.”

Given the current market scenario, building a nest egg is important to attain your long-term goals. To that end, it could be wise to invest in The Kroger Co. (KR), Johnson & Johnson (JNJ), and Taiwan Semiconductor Manufacturing Company Limited (TSM), which have solid growth potential and offer a steady income stream in the form of dividends.

The Kroger Co. (KR)

KR functions as a retailer in the United States. The company operates combination food and drug stores which offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce, and multi-department stores which provides apparel, home fashion and furnishings, outdoor living, electronics, automotive products, and toys, marketplace stores, and price impact warehouses.

Last month, KR announced that it would offer more American delivery by adding spoke facilities in Nashville, Tennessee, and Maywood, Illinois. As a result of working with nearby fulfillment centers, KR delivery will now reach customers in Greater Nashville and the Chicago Metro Area.

In June, KR announced a 35,000 square-foot expansion at Tamarack Farms Dairy to aid the implementation of a state-of-the-art aseptic milk line capable of manufacturing products such as half and half, heavy whipping cream, coffee creamers, and Carbmaster milk beverage. The new line will allow the facility to support over 150 jobs.

KR declared a quarterly dividend of $0.26 on June 22, 2022, payable on September 1, 2022. KR’s $1.04 annual dividend yields 2.1% at the current share price. Also, it has a four-year average dividend yield of 1.96%. Its dividend payouts have increased at a 12.9% CAGR over the past five years.

Also, in June, KR announced it would offer more American delivery through the addition of a new customer fulfillment center (CFC) in Aurora, Colorado, powered by the Ocado Group, engineering a model for the region, leveraging advanced robotics technology and creative solutions to redefine the customer experience in the Denver Metro Area.

KR’s sales increased 8% year-over-year to $44.60 billion during the first quarter of 2022. Its operating profit amounted to $1.51 billion, up 87% from its prior-year quarter. The company’s net earnings increased 374.3% from its year-ago value to $664.00 million, while its EPS rose 400% year-over-year to $0.90.

The consensus EPS estimate of $0.78 represents a 0.5% improvement year-over-year during the third quarter ending October 2022. Analysts expect KR’s revenue to increase 7.6% year-over-year to $34.09 billion during the second quarter ending July 2022. In addition, the company has an impressive earnings history as it surpassed the consensus EPS estimate in all of the trailing four quarters.

The company’s shares have surged 9.4% year-to-date and 21.1% over the past nine months.

The company’s revenue has grown at a CAGR of 3.8% over the past five years. In addition, its EPS and levered FCF have grown at CAGRs of 8.3% and 59.9% over the past three years.

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

The stock also has a B grade for Growth, Value, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #4 of 38 stocks.

Click here to see KR’s additional POWR Ratings for Sentiment, Stability, and Momentum.

Johnson & Johnson (JNJ)

JNJ develops, manufactures, and sells various products in the healthcare field worldwide. The company’s Consumer Health segment offers baby care products under the JOHNSON’S and AVEENO Baby brands; oral care products under the LISTERINE brand; skin health/beauty products under the AVEENO, CLEAN & CLEAR, DR. CI:LABO, NEUTROGENA, and OGX brands; TYLENOL acetaminophen products; SUDAFED cold, flu, and allergy products.

JNJ paid a quarterly dividend of $1.13 on June 7, 2022. JNJ’s $4.52 annual dividend yields 2.6% at the current share price. Also, it has a four-year average dividend yield of 2.6%. Its dividend payouts have increased at a 5.9% CAGR over the past five years.

In June, JNJ announced the launch of the new J&J Satellite Center for Global Health Discovery (Satellite Center) at Singapore’s Duke-NUS Medical School, jointly established by Duke University and the National University of Singapore (NUS) as a graduate-entry medical school and research powerhouse.

For the second quarter of 2022, JNJ’s sales increased 3% year-over-year to $24.02 billion. Its gross profit improved 2.4% year-over-year to $16.10 billion, while its adjusted net earnings amounted to $4.81 billion. The company’s adjusted EPS came in at $2.59, up 4.4% from its prior-year quarter.

Analysts expect JNJ’s revenue to increase 0.6% year-over-year to $23.49 billion for the third quarter ending September 2022. The company’s EPS is expected to grow 6% year-over-year to $2.26 for the fourth quarter ending December 2022. Moreover, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters.

The company’s shares have soared 1.4% over the past year and 7.2% over the past nine months.

JNJ’s revenue has grown at a CAGR of 5.7% over the past five years. In addition, its EBITDA and EPS have grown at CAGRs of 5.3% and 4.5% over the past three years.

JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The stock also has an A grade for Stability and a B for Quality and Growth. Within the F-rated Medical – Pharmaceuticals industry, it is ranked #1 of 171 stocks.

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

Taiwan Semiconductor Manufacturing Company Limited (TSM)

Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices internationally. It offers complementary metal oxide silicon wafer fabrication processes to manufacture logic, mixed-signal, radiofrequency, and embedded memory semiconductors.

TSM declared a quarterly dividend of $0.46 on May 10, 2022, payable on October 13, 2022. TSM’s $1.93 annual dividend yields 2.1% at the current share price. Also, it has a four-year average dividend yield of 2.6%. Its dividend payouts have increased at a 10.8% CAGR over the past five years.

For the second quarter ending June 30, 2022, TSM’s net revenue increased 43.5% year-over-year to NTD534.14 billion ($17.73 billion). Its income from operations grew 79.9% from its year-ago value to NTD262.12 billion ($8.70 billion), while its net income improved 76.4% from its prior-year quarter to NTD237.18 billion ($7.87 billion). The company’s EPS rose 76.4% year-over-year to NTD9.14.

Analysts expect TSM’s revenue to increase 34.7% year-over-year to $19.91 billion for the third quarter ending September 2022. The company’s EPS is expected to grow 57.7% year-over-year to $1.69 in the third quarter ending September 2022. Moreover, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters. The stock has gained 1.2% over the past month.

The company’s revenue has grown at a CAGR of 14.1% over the past five years. In addition, its EBITDA and EPS have grown at CAGRs of 25.6% and 34% over the past three years.

It is no surprise that TSM has an overall B rating, equating to Buy in our POWR Ratings system. TSM has an A grade for Quality and a B grade for Sentiment and Growth. In the B-rated Semiconductor & Wireless Chip industry, it is ranked #17 of 96 stocks

Click here to see the additional POWR Ratings for TSM (Stability, Momentum, and Value).

KR shares were trading at $49.66 per share on Monday morning, up $0.16 (+0.32%). Year-to-date, KR has gained 11.26%, versus a -11.72% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...

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