The Federal Reserve recently raised its benchmark interest rate by 25 basis points, bringing the target range to 4.5%-4.75%, the highest since October 2027. It marks a slowdown from December’s rate hike of 50 basis points. While Fed Chair Jerome Powell acknowledged that the “disinflationary process has started,” he also cautioned that it would be very premature to declare victory in the battle against inflation.

Furthermore, the January jobs data showed that nonfarm payrolls rose by 517,000, exceeding the 187,000 market estimate. The unemployment rate fell to 3.4%.

With reference to the January Job Report, Powell said, “If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have do more and raise rates more than is priced in. My guess is it will take certainly higher interest rates into not just this year, but next year to get down close to 2%.”

The labor market’s surprising strength has prompted several investors to reexamine their expectations for rate hikes for 2023, with some predicting that the Fed might increase rates as high as 6% by the end of this year. Also, Jamie Dimon, CEO of JPMorgan Chase & Co. (JPM), believes that the central bank might need to raise rates above 5%.

Continued interest rate hikes might temper the demand for goods and services and make debt expensive for companies, potentially triggering a much-feared recession.

Against this backdrop, it could be wise to invest in fundamentally sound stocks Walmart Inc. (WMT) and McDonald’s Corporation (MCD), for stable returns.

Walmart Inc. (WMT)

WMT provides shopping alternatives in retail stores and through e-commerce and access to its various service offerings. It offers an assortment of merchandise and services at everyday low prices (EDLP). The company operates through three segments, Walmart U.S.; Walmart International; and Sam’s Club. 

On January 12, 2023, Walmart Commerce Technologies and Walmart GoLocal announced a partnership with Salesforce, Inc (CRM) to give retailers access to the tools and services that enable frictionless local pickup and delivery for customers worldwide. WMT should profit from enhancing the user experience.

On December 15, 2022, WMT declared that it would improve customer experience by investing in supply chains, logistics, and infrastructure. WMT Canada announced plans to build a pioneering distribution center in Quebec.

Additionally, the soon-to-open Villahermosa Perishables Distribution Center in Mexico should strengthen the company’s logistics and supply chain networks throughout the Southeast region.

WMT’s total revenues grew 8.7% year-over-year to $152.81 billion in the fiscal 2023 third quarter ended October 31, 2022. Its adjusted operating income rose 3.9% from the prior year’s quarter to $6.02 billion. As of October 31, 2022, the company’s total current assets stood at $87.68 billion, compared to $81.07 billion as of January 31, 2022.

Analysts expect WMT’s revenue to increase 3.1% year-over-year to $621.10 billion for the fiscal year ending January 2024. The company’s EPS for the same year is expected to rise 7.6% from the previous year to $6.54. Moreover, WMT surpassed its consensus EPS in three of four trailing quarters.

Shares of WMT have gained 9.8% over the past six months to close the last trading session at $141.52.

WMT’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a B grade for Sentiment and Stability. Within the A-rated 39-stock Grocery/Big Box Retailers industry, it ranks #8.

To see additional POWR Ratings for Value, Growth, Quality, and Momentum for WMT, click here.

McDonald’s Corporation (MCD)

MCD operates and franchises McDonald’s restaurants, which feature a locally relevant menu of food and beverages. Its restaurants are owned and operated by independent business owners. Its segments include the United States (U.S.); International Operated Markets (IOM); and International Developmental Licensed Markets & Corporate (IDL). 

On January 31, 2023, MCD’s President and Chief Executive Officer, Chris Kempczinski, said, “While we expect short-term inflationary pressures to continue in 2023, we remain highly confident in Accelerating the Arches, which now includes a greater emphasis on new restaurant openings.”

The recently announced Accelerating the Organization initiative should complement the Accelerating the Arches strategy by helping the MCD’s system to be faster, more innovative, and more efficient.

For the fiscal fourth quarter that ended December 31, 2022, MCD’s revenue from franchised restaurants increased 7.5% year-over-year to $3.65 billion, while its operating income grew 7.7% from the year-ago value to $2.58 billion. Moreover, the company’s net income and EPS increased 16.1% and 18.8% year-over-year to $1.90 billion and $2.59, respectively.

The consensus revenue and EPS estimate of $24.40 billion and $10.60 for the current fiscal year (ending December 2023) reflects a growth of 5.3% and 5% from the previous year, respectively. Moreover, MCD surpassed its consensus EPS in all four trailing quarters, which is impressive.

Furthermore, the consensus revenue and EPS estimate of $25.91 billion and $11.68 for the fiscal year (ending December 2024) indicates a rise of 6.2% and 10.2% year-over-year, respectively. The stock has gained marginally over the past six months to close the last trading session at $260.66.

MCD’s solid prospects are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.

MCD has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Restaurants industry, it ranks #10 out of 45 stocks.

Beyond what we stated above, we also have MCD’s ratings for Value, Growth, and Momentum. Get all MCD ratings here.

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WMT shares were trading at $142.98 per share on Friday morning, up $1.46 (+1.03%). Year-to-date, WMT has gained 0.84%, versus a 6.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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