Even though the stock market got a boost from solid third-quarter earnings reports, a supply chain crisis and high crude oil prices still exist and have been increasing inflation risks. Federal Reserve Chair Jerome Powell said last week that the U.S. central bank should now start the process of reducing its support to the economy by cutting back on its asset purchases, however. The bank’s ultra-loose monetary policy, in part, has led to stretched valuations for several fundamentally weak stocks.

The possible impact of rising COVID-19 cases on the economic recovery could lead to further market volatility. According to a Bankrate survey, most top experts believe a stock market correction is likely next year.

Against this backdrop, we think it could be wise to bet on fundamentally strong stocks UnitedHealth Group Incorporated (UNH) and Target Corporation (TGT). They are rated ‘Strong Buy’ or ‘Buy’ in our POWR Ratings system. In addition, these stocks possess a solid combination of growth and stability attributes.

UnitedHealth Group Incorporated (UNH)

With 88.7% institutional ownership, Minnetonka, Minn.-based UNH operates as a diversified health care company in the United States. It operates through four segments: UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx. In addition, it offers Medicaid plans, health management services, advisory consulting arrangements, and pharmacy care services and programs, among others.

On July 8, 2021, UNH introduced predictive analytics to help improve well-being, lower costs, and drive engagement in clinical intervention programs by addressing social determinants of health for people in some employer-sponsored benefit plans. This move could further increase the demand for UNH’s products and services in the coming months, owing to its consistent product and services innovation.

UNH’s revenue increased 11% year-over-year to $72.30 billion for the third quarter ended September 30, 2021. The company’s earnings from operations grew 21.3% year-over-year to $5.70 billion, while its adjusted net earnings increased 27.8% year-over-year to $4.32 billion. Also, its adjusted EPS came in at $4.52, up 28.8% year-over-year.

Analysts expect UNH’s EPS to be $4.31 for the quarter ending December 31, 2021, representing a 71% year-over-year increase. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 11.3% year-over-year to $286.13 billion in fiscal 2021. Over the past nine months, the stock has gained 32.5% to close yesterday’s trading session at $454.64. It has a 0.79 beta.

UNH’s 40.7%, 76.1%, and 219.6% respective one, three and five-year returns compare with the S&P 500’s 34.3%, 71.8% and 113.3% gains.

It’s no surprise that UNH has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. In addition, the stock has a B grade for Growth, Sentiment, Stability, and Quality.

Click here to see UNH’s rating for Value and Momentum as well. In addition, UNH is ranked #2 of 11 stocks in the B-rated Medical – Health Insurance industry.

Target Corporation (TGT)

A general merchandise retailer, TGT has roughly 1,909 stores across the United States and operates 44 distribution centers. It sells its products through its stores and digital channels. The Minneapolis, Minn., company offers food assortments, including perishables, dry grocery, dairy, frozen items, apparel, accessories, home décor products, electronics, toys, and seasonal offerings. It has 81.4% institutional ownership.

On October 14, 2021, TGT announced its limited-edition collection with the LEGO Group, featuring a lifestyle assortment that goes well beyond the company’s iconic brick, with joyful, colorful items across home goods, pets, toys, and gifts, as well as apparel and accessories for the entire family. As the company expands its product offerings, it should also be able to reach a wider audience.

TGT’s revenue increased 9.5% year-over-year to $25.16 billion for its fiscal second quarter, ended July 31, 2021. Its EBITDA grew 6.6% year-over-year to $3.11 billion, while its net earnings increased 7.4% year-over-year to $1.82 billion. Also, its adjusted EPS came in at $3.64, up 7.9% year-over-year.

For its fiscal year 2021, analysts expect TGT’s EPS and revenue to increase 38.1% and 11.8%, respectively, year-over-year. In addition, it surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 46.6% in price year-to-date to close yesterday’s trading session at $258.73. It has a 0.73 beta.

TGT has gained 63.8%, 215.8%, and 277.2%, respectively, over the past one, three, and five years, respectively, outperforming the S&P 500.

Its strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Sentiment, Quality, and Value.

We have also graded TGT for Momentum, Stability, and Growth. Click here to access all TGT’s ratings. TGT is ranked #7 of 41 stocks in the A-rated Grocery/Big Box Retailers industry.

Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in TGT for a 65% gain. Learn more about the RTR service here.

UNH shares were trading at $456.19 per share on Wednesday afternoon, up $1.55 (+0.34%). Year-to-date, UNH has gained 31.49%, versus a 23.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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