Due to strong inflation and the Fed’s monetary tightening, the stock market has witnessed wild swings since the last year. With the market turbulence unlikely to ease anytime soon, investing in fundamentally strong stocks, UnitedHealth Group Incorporated (UNH) and McKesson Corporation (MCK), could be wise.
These stocks look well-positioned to reward shareholders through significant capital appreciation and consistent dividend payouts. Moreover, healthcare stocks tend to perform relatively well, irrespective of market conditions, thanks to the inelastic demand for their products and services.
The recent strong economic data is raising the likelihood of the Fed raising interest rates more than expected. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” the U.S. central bank chief said in his semi-annual testimony before the Senate Banking Committee.
Many economists have warned that such consistent rate hikes could throw the economy into a recession this year. Former treasury secretary, Larry Summers, cautioned that despite some resilient data, the possibility of the economy falling into a recession looms large.
Given this backdrop, the market is projected to remain volatile in the near future, and this could be the ideal time to invest in reliable dividend stocks like UNH and MCK.
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.
UNH has paid dividends for 20 consecutive years. Over the last three years, UNH’s dividend payouts have grown at 15.6% CAGR. While UNH’s four-year average dividend yield is 1.36%, its current dividend translates to a 1.40% yield.
UNH’s trailing-12-month EBITDA margin of 9.51% is 167% higher than the industry average of 3.56%. Its trailing-12-month ROCE is 26.91% compared to the industry average of negative 40%.
UNH’s total revenues increased 12.3% year-over-year to $82.79 billion for the fiscal fourth quarter that ended December 31, 2022. In addition, its adjusted net earnings and EPS came in at $5.06 billion and $5.34, up 18.1% and 19.2% year-over-year, respectively.
UNH’s revenue is expected to increase by 11% year-over-year to $359.73 billion in 2024. Its EPS is expected to grow 12.4% year-over-year to $24.94 in 2024. It surpassed EPS estimates in all four trailing quarters. UNH’s shares have lost marginally intraday to close the last trading session at $470.60.
UNH’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a 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 Growth, Stability, Sentiment, and Quality. Within the A-rated Medical – Health Insurance industry, it is ranked #3 out of 10 stocks. Click here for the additional POWR Ratings for Value and Momentum for UNH.
McKesson Corporation (MCK)
MCK provides healthcare services in the United States and internationally. It operates through four segments: U.S. Pharmaceutical; International; Medical-Surgical Solutions; and Prescription Technology Solutions.
MCK has paid dividends for 23 consecutive years. Over the last three years, MCK’s dividend payouts have grown at 8.9% CAGR. While MCK’s four-year average dividend yield is 0.90%, its current dividend translates to a 0.64% yield.
In terms of the trailing-12-month net income margin, UNH’s 1.15% compared to the industry average of negative 7.07%. Its trailing-12-month asset turnover ratio of 4.33x is significantly higher than the 0.34x industry average.
MCK’s revenue came in at $70.49 billion for the third quarter that ended December 31, 2022, up 2.7% year-over-year. Its adjusted earnings increased 3% year-over-year to $972 million, while its adjusted EPS increased 12.2% year-over-year to $6.90.
The consensus revenue estimate of $275.96 billion for the fiscal year 2023 indicates a 4.5% increase year-over-year. Its EPS is expected to grow 9.6% year-over-year to $25.96 in 2023. It surpassed EPS estimates in three of four trailing quarters. Over the past year, the stock has gained 24% to close the last trading session at $338.28.
MCK’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It has an A grade for Growth and Value and a B for Stability and Sentiment.
MCK is ranked first among 77 stocks in the Medical – Services industry. For additional POWR Ratings for Momentum and Quality for MCK, click here.
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UNH shares were trading at $472.71 per share on Thursday morning, up $2.11 (+0.45%). Year-to-date, UNH has declined -10.84%, versus a 4.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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