While a 50-bps interest rate hike by the Federal Reserve this week seems to have been priced into the market, robust employment data and hotter-than-expected producer price data for November have kept investors concerned about the target rate and its inhibiting effect on the economy.
As borrowing costs keep rising, demand is set to soften further, putting further pressure on business margins. Hence, market volatility is unlikely to catch a break anytime soon.
In such a scenario, shares of fundamentally strong businesses belonging to sectors whose demand is immune to an economic slowdown seem ideal investments to seek refuge.
To that end, we think UnitedHealth Group Incorporated (UNH), McDonald’s Corporation (MCD), and Kroger Co. (KR) will likely offer protection from downside risks.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company. The company operates through four segments: Optum Health; OptumInsight; OptumRx; and UnitedHealthcare. It offers consumer-oriented health benefit plans and services, software and information products, health care coverage, and well-being services. Additionally, UNH provides access to networks of care provider specialists, consumer engagement, and financial services.
On November 4, UNH announced its quarterly cash dividend of $1.65 per share, payable on December 13. The company pays $6.60 annually as dividends, translating to a yield of 1.22% at the current price. Its 4-year average dividend yield is 1.36%. Moreover, dividend payouts have increased for 13 consecutive years.
On September 21, UNH and Peloton Interactive Inc. (PTON) renewed and expanded their relationship to extend subscription and preferred pricing benefits to the commercial member. This engagement is set to provide additional value to UNH’s customers, further securing its client base.
On September 7, UNH and Walmart Inc. (WMT) announced the beginning of a 10-year wide-ranging collaboration. Optum, a UNH subsidiary, would provide proven clinical abilities to assist select Walmart Health locations and improve people’s health outcomes by advancing value-based care. The collaboration is expected to expand further to include additional products and services over time.
For the fiscal 2022 third quarter ended September 30, 2022, UNH’s revenues increased 11.8% year-over-year to $80.89 billion. The company’s earnings from operations rose 30.6% from the year-ago value to $7.46 billion. In addition, its adjusted earnings attributable to UNH common shareholders came in at $5.49 billion and $5.79, up 27.2% and 32.1% year-over-year, respectively.
Analysts expect UNH’s revenue for the fiscal year 2022 (ending December 2022) to come in at $323.93 billion, indicating a 12.6% rise from the last year. Also, Street expects the company’s EPS for the current fiscal to grow 15.8% year-over-year to $22.03. The company has exceeded the consensus EPS estimates in each of the trailing four quarters.
UNH’s shares have gained 24.2% over the past year to close the last trading session at $512.08.
UNH’s POWR Ratings reflect its fundamental strength. 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.
UNH has a B grade for Sentiment, Quality, Growth, and Stability. In the A-rated Medical – Health Insurance industry, it is ranked #2 of 11 stocks.
Beyond what we’ve stated above, we have also given UNH grades for Value and Momentum. Get all UNH ratings here.
McDonald’s Corporation (MCD)
MCD and its franchisees are renowned for operating restaurants globally. The company operates through three segments: the United States (U.S.); International Operated Markets (IOM); and International Developmental Licensed Markets & Corporate (IDL).
On October 26, MCD began a small operations test of select Krispy Kreme doughnuts at nine restaurants in Louisville and the surrounding area. The company expects this small-scale test to help it understand how offering new bakery items like Krispy Kreme could impact restaurant operations.
On October 13, MCD declared a quarterly cash dividend of $1.52 per share of common stock, payable on December 15, 2022. This represents an increase of 10% over the company’s previous quarterly dividend.
MCD pays $6.08 annually as dividends. This translates to a yield of 2.23% on the current price. This compares to its four-year average dividend yield of 2.27%. The company increased its dividend payouts for 21 consecutive years.
On September 14, 2022, MCD announced the establishment of a new facility, Speedee Labs, aimed at a new innovative environment creating more opportunities for collaboration and end-to-end development of restaurant solutions and technologies.
For the nine months of the fiscal year ended September 30, 2022, MCD’s revenues came in at $17.26 billion. During the same period, the company’s non-GAAP net income came in at $5.58 billion or $7.51 per share, up 5.3% and 6.5% year-over-year, respectively.
Analysts expect MCD’s revenue and EPS for the fiscal year ending December 2023 to grow 3.1% and 5.7% year-over-year to $23.70 billion and $10.51, respectively. Moreover, the company has surpassed EPS estimates in three of four trailing quarters.
The stock has gained 1.3% year-to-date to close the last trading session at $272.04.
MCD has an overall B rating, which equates to a Buy in our POWR Ratings systems. It has an A grade for Quality and a B for Stability and Sentiment.
MCD is ranked #15 of 44 stocks in the B-rated Restaurants industry.
Click here to see the additional POWR Ratings for Growth, Value, and Momentum for MCD.
Kroger Co. (KR)
KR operates primarily in the United States as a retailer through multi-department stores, price-impact warehouses, marketplace stores, and food/drug stores. It also manufactures and processes food products for sale online and in supermarkets.
On December 7, KR announced the opening of the 1,000th Murray’s Cheese shop in Kroger banner stores, bringing Murray’s shops to more than 30 states across America. As expert cheesemongers, Murray’s shops are expected to help shoppers make the most of the holiday season.
On October 18, KR officially opened its newest Customer Fulfillment Center (CFC) in Romulus, Michigan. In partnership with the Ocado Group (OCDO), the CFC will leverage advanced robotics technology and creative solutions to redefine the customer experience in the greater Detroit area.
On October 14, KR and Albertsons Companies, Inc. (ACI) announced that they have entered into a definitive agreement under which the two complementary organizations with iconic brands and deep roots in their local communities will merge into a single entity.
Under the terms of the merger agreement, KR will acquire all of the outstanding shares of ACI common and preferred stock for an estimated total consideration of $34.10 per share, implying a total enterprise value of approximately $24.6 billion, including the assumption of roughly $4.7 billion of ACI’s net debt.
This merger is expected to lead to greater synergy and significant inorganic growth in KR’s top line.
For the third quarter that ended November 5, 2022, KR’s sales came in at $34.20 billion, up 7.3% year-over-year. During the same period, net earnings attributable to KR came in at $398 million, while its adjusted EPS came in at $0.88, up 12.8% year-over-year. The company’s total assets came in at $49.99 billion as of November 5, 2022, compared to $49.83 billion as of November 6, 2021.
Analysts expect KR’s revenue for fiscal 2023 to increase 7.6% year-over-year to $148.34 billion. During the same period, its EPS is expected to increase 12.2% year-over-year to $4.13. Moreover, it has impressed by surpassing consensus EPS estimates in each of the four trailing quarters.
The stock has gained 2.8% year-to-date to close the last trading session at $46.47.
KR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. It has a grade of B for Value and Quality.
KR is ranked #12 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
Click here for additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for KR.
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REVISED: 2023 Stock Market Outlook (includes top 7 picks)
UNH shares were trading at $544.28 per share on Monday afternoon, up $5.08 (+0.94%). Year-to-date, UNH has gained 9.78%, versus a -15.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...
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