As there are expectations of further hikes in interest rates, many analysts expect the economy to head into a recession. Therefore, companies that provide necessities, such as utilities, food, logistics, and healthcare, should perform better than others.

However, not all companies within the consumer essentials industry are well-positioned to survive the potential recessionary pressures. With continued supply chain disruptions and high prices, some companies may undergo further pressure.

Given this backdrop, investors could benefit by investing in fundamentally strong and resilient stocks Walmart Inc. (WMT), PepsiCo, Inc. (PEP), and Covenant Logistics Group, Inc. (CVLG). On the other hand, due to its weak fundamentals, Bed Bath & Beyond Inc. (BBBY) could be best avoided now.

Stocks to Buy:

Walmart Inc. (WMT)

WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club.

Over the last three years, WMT’s dividend payouts have grown at a 1.9% CAGR. Its four-year average dividend yield is 1.72%, and its forward annual dividend of $2.24 per share translates to a 1.51% yield. It is expected to pay a quarterly dividend of $0.56 per share on January 3, 2023.

On October 31, 2022, Popable, a pop-up shop marketplace platform, and WMT announced a strategic partnership that allows small businesses to rent retail space in WMT stores across the country for short-term leasing. The partnership is believed to help small business owners thrive, keeping excess inventory moving and creating greater built-in foot traffic. WMT will benefit from the utilization of its store space.

For the fiscal third quarter ended October 31, 2022, WMT’s total revenues increased 8.7% year-over-year to $152.81 billion. Its adjusted operating income increased 3.9% year-over-year to $6.02 billion. In addition, its adjusted EPS came in at $1.50, representing a 3.4% increase from the year-ago quarter.

WMT’s revenue for the quarter ending January 31, 2023, is expected to increase 4.2% year-over-year to $157.90 billion. Its EPS for the quarter ending April 30, 2023, is expected to grow 11% year-over-year to $1.44.

The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 12.7% to close the last trading session at $148.

WMT’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.

Within the A-rated Grocery/Big Box Retailers industry, it is ranked #11 out of 39 stocks. The company has an A grade for Sentiment and a B for Stability and Quality.

Click here to see the additional POWR ratings of WMT for Growth, Value, and Momentum.

PepsiCo, Inc. (PEP)

PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region.

Over the last three years, PEP’s dividend payouts have grown at a 5.7% CAGR. Its four-year average dividend yield is 2.80%, and its forward annual dividend of $4.60 per share translates to a 2.56% yield. It paid a quarterly dividend of $1.15 per share on September 30, 2022.

On September 14, 2022, ADM (ADM) and PEP announced a 7.5-year strategic commercial agreement to collaborate on projects that aim to expand regenerative agriculture closely. PEP’s Chief Sustainability Officer, Jim Andrew, believes that this partnership will help PEP reach almost one-third of its goal to reduce carbon emissions to 7 million acres by 2030.

PEP’s net revenue for the third quarter ended September 3, 2022, increased 8.8% year-over-year to $21.97 billion. The company’s non-GAAP operating profit increased 11% year-over-year to $3.59 billion, while its non-GAAP net income attributable to PEP increased 10.1% year-over-year to $2.73 billion. Additionally, its adjusted EPS increased 10% from the prior-year period to $1.97.

Analysts expect PEP’s EPS and revenue for the quarter ending December 31, 2022, to increase 7.2% and 5.3% year-over-year to $1.64 and $26.59 billion, respectively. The company has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 10.2% to close the last trading session at $180.03.

It is no surprise that PEP has an overall rating of B, which translates to a Buy in our proprietary rating system. It is ranked #8 out of 34 stocks in the A-rated Beverages industry. It has an A grade for Quality and a B for Growth, Stability, and Sentiment.

Click here to see the other PEP ratings for Value and Momentum.

Covenant Logistics Group, Inc. (CVLG)

CVLG provides transportation and logistics services in the United States. It operates through four segments: Expedited, Dedicated, Managed Freight, and Warehousing.

CVLG’s total revenue for the fiscal third quarter ended September 30, 2022, increased 13.6% year-over-year to $311.84 million. Its adjusted operating income increased 5.7% year-over-year to $22.45 million, while its adjusted net income increased 31.1% year-over-year to $22.64 million. In addition, its non-GAAP EPS came in at $1.52, representing an increase of 49% year-over-year.

CVLG’s EPS and revenue for the quarter ending December 31, 2022, are expected to increase 40.5% and 0.4% year-over-year to $1.50 and $295.53 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 75.3% to close the last trading session at $38.86.

CVLG’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of B, which equates to a Buy in our proprietary rating system. It is ranked #2 of 21 stocks in the Trucking Freight industry. In addition, it has a B grade for Value and Momentum.

In total, we rate CVLG on eight different levels. Beyond what we stated above, we have also given CVLG grades for Growth, Stability, Sentiment, and Quality. Get all the CVLG ratings here.

Stock to Avoid:

Bed Bath & Beyond Inc. (BBBY)

BBBY operates a chain of retail stores. It sells a range of domestic merchandise, bath items, kitchen textiles, and home furnishings.

BBBY’s net sales for the second quarter ended August 27, 2022, declined 27.6% year-over-year to $1.44 billion. The company’s non-GAAP net loss came in at $256 million, compared to a non-GAAP net income of $4 million in the year-ago period.

Its adjusted EBITDA loss came in at $167.52 million, compared to an adjusted EBITDA of $85 million. In addition, its adjusted loss per share came in at $3.22, compared to an adjusted EPS of $0.04.

Analysts expect BBBY’s EPS for the quarter ending November 30, 2022, to remain negative. Its revenue for the same quarter is expected to decline 23.4% year-over-year to 1.44 billion. It has a bleak earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters. 

Over the past year, the stock has fallen 84.9% to close the last trading session at $3.45.

BBBY’s POWR Ratings are consistent with this bleak outlook. The company’s overall F rating translates to a Strong Sell in our proprietary rating system. It is ranked #57 out of 60 stocks in the Home Improvement & Goods industry. In addition, it has an F grade for Stability and Sentiment and a D for Quality.

To see the other ratings of BBBY for Growth, Value, and Momentum, click here.

WMT shares were trading at $149.27 per share on Friday afternoon, up $1.27 (+0.86%). Year-to-date, WMT has gained 4.39%, versus a -16.13% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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