The stock market seems to be at a crossroads. While the Fed’s aggressive rate hikes have pulled down inflation from its summer highs, an uninterrupted hawkishness could trigger a deep recession this year. 

The central bank’s rate hikes seemed to pay off as inflation eased in November, with CPI rising 7.1% year-over-year, reflecting that inflation has moderated from its 9.1% peak in June 2022. Inflation has also been lower than expected in October.

However, despite a raft of layoffs, the recent hotter-than-expected jobs data has strengthened the case for the Federal Reserve to continue with its aggressive stance.

According to the minutes of its December meeting, released on Wednesday, the Central Bank expressed its determination to dismiss market sentiments and keep increasing interest rates until inflation is brought back to the desired 2% level.

“Like a deflating holiday lawn ornament, Fed Chairman Jerome Powell’s news conference drained investor hopes of avoiding a recession and showed that history may again prove correct in previously warning of a potential economic downturn,” said CFRA strategist Sam Stovall.

With recession seemingly inevitable, investors are on shaky ground. Speculations of it being either mild or painful have been the talk of late. Amid this backdrop, shares of fundamentally strong businesses, UnitedHealth Group Incorporated (UNH - Get Rating) and Archer-Daniels-Midland Company (ADM - Get Rating), could be your top picks for 2023. These companies also pay reliable dividends.

UnitedHealth Group Incorporated (UNH - Get Rating)

UNH is a diversified healthcare and insurance company that offers a broad spectrum of products and services through UnitedHealthcare and Optum platforms. The company provides employers with products and resources to plan and administer employee benefit programs.

On January 5, 2023, Northern Light Health and Optum announced a strategic relationship to enhance the healthcare experience throughout Maine. This collaboration is expected to increase administrative efficiency and advance innovative technology to help serve patients more effectively.

On November 16, 2022, UNH and Life Time Group Holdings, Inc. (LTH) announced an expansion of their relationship to include access to all Life Time locations, helping even more people stay active and improve their physical and mental well-being. This will help UNH deliver additional value to its customers, thereby expanding its market share.

The company pays $6.60 annually as dividends, translating to a yield of 1.35% at the current price. Its 4-year average dividend yield is 1.36%. Moreover, dividend payouts have increased for 13 consecutive years and at a 17.4% CAGR over the past five years. On December 13, 2022, UNH paid its quarterly cash dividend of $1.65 per share.

UNH’s net revenues increased 11.8% year-over-year to $80.89 billion in the third quarter ended September 30, 2022. The company’s adjusted net earnings attributable to UNH increased 27.2% from the year-ago value to $5.49 billion, while its earnings from operations grew 30.6% year-over-year to $7.46 billion. UNH’s adjusted EPS rose 28.1% from the prior-year quarter to $5.79.

For the fiscal fourth quarter (ended December 31, 2022), UNH’s revenue is expected to increase 11.9% year-over-year to $82.53 billion. Its EPS for the same period is expected to increase by 15.5% to $5.18. The stock surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.

Shares of UNH have gained marginally over the past year to close its last trading session at $489.96.

UNH’s POWR Ratings reflect this promising outlook. It 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.

It has an A grade for Sentiment and a B for Growth, Stability, and Quality. Out of 11 stocks in the A-rated Medical – Health Insurance industry, it is ranked first. Click here to see UNH’s additional ratings for Value and Momentum.

Archer-Daniels-Midland Company (ADM - Get Rating)

ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients worldwide. The company has three operational segments, Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition. It acquires, stores, cleans, and transports agricultural raw materials, such as oilseeds, corn, wheat, milo, oats, and barley.

On December 12, 2022, ADM was recognized as a ‘Diversity Leader 2023’ by the Financial Times and was also named as one of the best-managed companies in the U.S. according to the Wall Street Journal’s annual Management Top 250 ranking. This reflects the company’s exceptional performance and constant commitment amid a challenging global environment.

On September 14, 2022, ADM and PepsiCo, Inc. (PEP) announced a ground-breaking 7.5-year strategic commercial agreement to collaborate closely on projects that aims to significantly expand regenerative agriculture across their shared North American supply chains. This partnership between two global companies with large footprints provides an unprecedented and unique opportunity to expand regen ag at scale.

ADM pays $1.60 annually as dividends, translating to a yield of 1.90% at the current price, while its four-year average dividend yield is 2.74%. Its dividends have grown at a 4.6% CAGR each over the past three and five years. ADM has a record of 29 years of consecutive dividend growth. The company paid its shareholders a quarterly dividend of $0.40 per share on December 7, 2022.

For the third quarter ending September 30, 2022, ADM’s revenues increased 21.4% year-over-year to $24.68 billion. Its gross profit grew 36.6% from its year-ago value to $1.81 billion, while its adjusted net earnings increased 91.2% year-over-year to $1.05 billion. Also, its adjusted EPS improved 91.8% from its prior-year quarter to $1.86.

Street expects ADM’s EPS and revenue for the quarter ended December 31, 2022, to increase 10.4% and 9.1% year-over-year to $1.66 and $25.19 billion, respectively. Moreover, it has an impressive earnings history as it surpassed the EPS estimate in each of the trailing four quarters.

The stock has gained 22.8% over the past year to close the last trading session at $84.23.

ADM has an overall rating of A, which translates to Strong Buy in our proprietary rating system. Also, it has an A grade for Growth and a B for Sentiment. Among the 28 stocks in the Agriculture industry, it is ranked #3.

Beyond what we’ve stated above, we have also given ADM grades for Value, Momentum, Stability, and Quality. Get all ADM ratings here.

UNH shares were trading at $488.09 per share on Friday morning, down $1.87 (-0.38%). Year-to-date, UNH has declined -7.94%, versus a 0.83% 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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