Incessant rate hikes by the Fed to tame the sky-high inflation had hammered growth stocks last year. However, the better-than-expected inflation number and downsizing of interest rate hikes could bode well for the stocks this year.
Although recessionary fears loom, investor optimism revived after the inpouring of favorable data on moderating inflationary pressure and stable economic growth.
Moreover, investors became bullish after Fed Chair Jerome Powell’s optimistic comment, “We can now say I think for the first time that the disinflationary process has started.” He further added that he expects U.S. economic growth to be positive this year, even if it falls to a “subdued pace.”
Furthermore, the job market remains strong, with the unemployment rate dropping to a 53-year low after the U.S. economy added 517,000 non-farm payrolls, far higher than the 187,000 market estimate.
Therefore, given the market scenario, investing in growth stocks could be a lucrative way to channel investments and generate returns. Over the past three months, the SPDR Portfolio S&P 500 Growth ETF (SPYG) has gained 9%.
Therefore, fundamentally strong and fast-growing stocks McKesson Corporation (MCK) and ADT Inc. (ADT) might be wise additions to your portfolio for the long term.
McKesson Corporation (MCK)
MCK is a diversified healthcare service provider operating globally. The company operates through its four segments: U.S. Pharmaceutical; Prescription Technology Solutions (RxTS); Medical-Surgical Solutions; and International.
On January 26, MCK declared a regular dividend of 54 cents per share of common stock, payable on April 3, 2023. This underscores its cash generation ability.
Its annual dividend of $2.16 yields 0.60% on prevailing prices. The company’s dividend payouts have increased at an 8.1% CAGR over the past three years and 10.3% CAGR over the five years. MCK’s four-year average dividend yield is 0.91%.
On September 29, 2022, it was announced by MCK that it would extend its long-standing partnership with CVS Health Corporation (CVS) to distribute pharmaceuticals to mail-order and specialty pharmacies, retail pharmacies, and distribution centers through June 2027. This should boost the company’s topline.
On September 19, MCK signed a definitive agreement to acquire Rx Savings Solutions, a prescription price transparency, and benefits insight company. MCK expects to use the combined medication access, affordability, and adherence services as a foundation to support its biopharma growth.
MCK’s revenue has grown at 6.8% and 5.9% CAGRs over the past three years and five years, respectively. Moreover, its EBITDA and EBIT have grown at 8.7% and 15.4% CAGRs over the past three years, respectively.
For the fiscal 2023 third quarter that ended December 31, 2022, MCK’s total revenues increased 2.7% year-over-year to $70.49 billion. Net income attributable to MCK increased significantly year-over-year to $1.08 billion for the same period. Its non-GAAP adjusted earnings came in at $972 million and $6.90 per share, representing an increase of 3% and 12.2% year-over-year, respectively.
For the fiscal fourth quarter ending March 2023, analysts expect MCK’s EPS and revenue to be $7.11 and $68.08 billion, indicating a 22% and 3% year-over-year growth, respectively. Additionally, it surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 34.6% over the past year and 4.9% over the past six months to close its last trading session at $363.61.
It’s no surprise that MCK has an overall A rating, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MCK is also rated an A for Growth and Value and a B for Sentiment, Stability, and Quality. In the Medical – Services industry, it is ranked #1 of 80.
Click here to see the additional POWR Ratings for MCK (Momentum).
ADT Inc. (ADT)
ADT provides security, interactive, and innovative home solutions to serve residential, small business, and commercial customers in the United States. Its segments include Consumer and Small Business (CSB); Commercial; and ADT Solar business (Solar).
On January 5, ADT introduced innovations in safety for homes, mobiles, and commercial applications at CES 2023 that showcase how the company connects and protects more people virtually anywhere they go.
ADT customers would be able to easily access and control their ADT devices, including a base, keypad, motion sensors, door and window sensors, smart bulbs, smart locks, smoke/carbon monoxide detectors, and compatible Google Nest Cams and Thermostats, through an intuitive app experience. This should help expand the customer base of the company.
ADT’s board of directors declared a cash dividend of $0.035 per share to holders of the company’s common stock and class B common stock, which was paid on January 4, 2023. This reflects its shareholder return ability.
Its annual dividend of $0.14 yields 1.66% on prevailing prices. ADT’s four-year average dividend yield is 4.41%.
ADT’s revenue has grown at 6.9% and 7.6% CAGRs over the past three years and five years, respectively. Moreover, its EBIT has grown at an 18% CAGR over the past three years.
ADT’s total revenue increased 21.8% year-over-year to $1.60 billion in the third quarter of the fiscal year 2022 that ended September 30, 2022, while the company’s adjusted EBITDA grew 11.9% year-over-year to $620 million.
The company reported an adjusted net income of $83 million and $0.10 per share, compared to an adjusted net loss of $54 million or $0.07 per share in the prior-year quarter.
Analysts expect ADT’s revenue for the fiscal first quarter ending March 2023 to grow 9.6% year-over-year to $1.69 billion. Also, its EPS is likely to rise 31.1% year-over-year to $0.12 in the same quarter. Additionally, it topped consensus revenue estimates in three of the trailing four quarters, which is impressive.
Shares of ADT have gained 6.7% over the past six months to close the last trading session at $8.56. It has also gained 1.7% intraday.
ADT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Stability and Sentiment. Within the 60-stock Home Improvement & Goods industry, it is ranked #4.
Beyond what we’ve stated above, additional ratings of ADT for Value, Momentum, and Quality are given here.
What To Do Next?
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
MCK shares were unchanged in premarket trading Wednesday. Year-to-date, MCK has declined -3.07%, versus a 8.57% 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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